Debt restructuring needed in Greece, IMF chief says

Debt restructuring must be part of any solution to the “acute” financial crisis in Greece, International Monetary Fund chief Christine Lagarde said Wednesday.

Further belttightening and structural reforms will not be enough to solve the problem in Greece, the IMF managing director told participants in an event at the Brookings Institution in Washington.

“The other leg is debt restructuring, which we believe is needed in the particular case of Greece for it to have debt sustainability. That analysis has not changed. It well may be that numbers may have to be revisited but our analysis has not changed,” she said, reiterating the conclusion of an IMF study released last week.

The Greek government is officially in arrears to the IMF after missing a payment of 1.5 billion euros ($1.7 billion) on June 3.

Athens found itself unable to make the payment after failing to reach agreement with the troika: the European Union, the European Central Bank and the IMF, on the disbursement of the remaining 15.5 billion euros ($17.3 billion) of a second rescue package for Greece.

Prime Minister Alexis Tsipras’ Syriza party, which won election in January on a promise to throw off troikamandated austerity policies that have pushed Greece’s unemployment rate above 25 percent, put forward a plan that crossed its own “red lines” by including further cuts to pensions.

The creditors, however, demanded additional concessions that the Greek government deemed unacceptable and Tsipras called a referendum on the question.

The government imposed capital controls and a bank holiday now extended until next Monday even before the July 5 ballot, in which more than 61 percent of Greeks who went to the polls voted “no” on accepting the troika’s terms.

The EU, with Germany in the lead, has now given the Greeks five days to produce a detailed proposal for discussion Sunday at an emergency summit.

Germany has adamantly rejected the notion of debt restructuring.

“Greece is clearly in a situation of acute crisis, which needs to be addressed seriously and promptly,” Lagarde said Wednesday. “We remain fully engaged in order to find a solution that will be most conducive with trying to restore stability, growth and debt sustainability.”

Her comments came hours after U.S. Treasury Secretary Jack Lew likewise insisted on the need to restructure Greece’s debt.

The Greek government submitted on Wednesday a formal request for a threeyear lending facility from the European Stability Mechanism, the Eurogroup’s bank bailout fund.