Reform key to IMF action on Greek bailout, says Lagarde

IMF chief Christine Lagarde has said that a decision by the Washington-based fund to participate in the Greek bailout may not be made until the second quarter of the year, as negotiations on the first review of the bailout programme prepare to get under way in Athens.

Bailout monitors are expected to fly to Greece for the first troika visit of the third Greek bailout package next week in a process that could take "months rather than weeks" according to eurogroup chairman Jeroen Dijsselbloem.

Ms Lagarde also said the question of debt sustainability and pension reform would be key to any participation, she said in an interview with German media.

Greek finance minister Euclid Tsakalotos was forced to clarify that the IMF would be part of the third bailout programme for Greece on Thursday, despite his prime minister Alexis Tsipras questioning whether the participation of the fund was needed as he criticised the IMF for being too demanding.

Mr Dijsselbloem said on Thursday that the Greek finance minister had assured eurogroup finance ministers that Greece accepted the principle of IMF involvement.

“There is an agreement. Part of that agreement is that the IMF stays on board. That is acknowledged and respected by the Greek government. I asked if that was still the case, and yes, that is still the case,” Mr Dijsselbloem said after the eurogroup meeting in Brussels, a position that was clarified by Mr Tsakolotos afterwards.

Mr Tsipras is due to meet Ms Lagarde at the World Economic Forum in Davos next week where he is expected to raise the issue of the IMF's involvement.

Separately, EU vice-president Valdis Dombrovskis expressed confidence the bailout review will commence as planned next week, though he declined to put any completion date on the process.

Asked about debt relief measures for Greece, the former Latvian prime minister said that, while debt sustainability was a precondition for IMF involvement, Greece’s debt-servicing costs were actually relatively low.

‘Manageable’ costs

“The debt-to-GDP ratio . . . they conclude is too high but when you look at the actual debt servicing costs, given the grace periods, given the very low interest rates of official debt, those debt servicing costs are more manageable, lower than for Italy or Portugal.”

While Mr Tsakalotos attended yesterday’s meeting of EU finance ministers in Brussels, the Ecofin meeting was dominated by discussions on the refugee crisis, with ministers pledging to tackle the question of financing of terrorism at their February meeting.