Analysis. The IMF director warns: “The scope of the debt restructuring will clearly depend on how many reforms have been implemented.”

The fate of Athens is in the hands of Merkel and Lagarde

Greece’s fate is in the hands of two women. On Wednesday in Berlin, Angela Merkel held a meeting with Christine Lagarde, director of the International Monetary Fund. The main topic of the meeting was the Greek crisis.

At the end of the mini-summit, Lagarde argued that first reforms will have to be applied and only then would they restructure the debt, which would not be a real “cut.”

Lagarde made a statement to the ARD television network about the future participation of the IMF in Greece’s rescue program. She said that “after the progress made by Greece, we are much more confident of our participation in the aid program.” The message she wanted to send is very clear: “The scope of the debt restructuring will clearly depend on how many reforms have been implemented” and that we must move toward “a postponement of loan maturities and a significant decrease in interest rates.” The first impression is that lenders want to impose their agenda before discussing the demands of the Athens government.

According to a number of rumors, however, Greece might be allowed greater flexibility, but only after 2018. The evident goal would be to prevent any more damage to the chancellor in the German elections to be held in September. She is already very distressed with the polls that indicate that the SPD, led by Martin Schulz, is very close.

The atmosphere of the meeting was friendly. The two women not only hold each other in high esteem, but Merkel was among the first political sponsors of the former French Economy Minister to be appointed to the helm of the IMF. Lagarde sees in Merkel the only stable point of reference in the uncertainties of a very fragile European framework.

It is clear that the negotiations between the credit institutions and Athens are reaching a pivotal point. The government of Athens is asking for the amount of measures to be under 1.5 percent of GDP; on the other hand, the IMF wants to hold the goal higher.

Among the issues to be discussed at the technical meeting Tuesday in Athens is a reduction of the tax exemption, now set at €8,736, and on the real estate tax, by about one-third. Another topic is the review of the VAT on food items, which is expected to decrease from 24 to 13 percent, as well as energy. The last items on the agenda are the reform of the tax system and the labor market. On this subject, the IMF’s positions are always very harsh, with demands for collective layoffs.

The last problem to solve is the issue of the primary surplus. Lenders would like Athens to hold it at 3.5 percent of GDP for 10 years, but Greece considers the request unrealistic. It asks to add the country to Mario Draghi’s Quantitative Easing.

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