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At the IMF’s Executive Board meeting on 14 May, the Fund’s CEO, Christine Lagarde, revealed that she had received a letter from the Greek Prime Minister, Alexis Tsipras, in which he stated that Greece wouldn't be able to pay its contribution to the IMF on 12 May. The letter said that the €750 million could only be paid if the European Central Bank lifted its restrictions on Greek liquidity.

As revealed by Kathimerini correspondent in Brussels Eleni Varvitsioti, during this extraordinary session two main topics were discussed: 1) the risk of Greece failing to pay, in the case that there is still no agreement with partners, and 2) the reasons why an agreement is not expected in the coming weeks.

Dialogues

At this meeting, the Director of the IMF’s European Department, Poul Thomsen, took the lead. The other 24 board members were mostly listening, none of the EU members spoke, except the Greek representative, Thanos Katsabas. Thomsen acknowledged that progress has been made in the talks, but emphasised that the Greek authorities were still far from the discussion of specific measures.

According to sources, Thomsen said that the tranche from the IMF would not be wired until the institutions completed their evaluation. If this were to happen, an agreement should be reached between IMF representatives and the Greek ministers, but in Thomsen’s opinion none is expected in the coming weeks.

Regarding the negotiations process, Thomson described it as anything but perfect, because despite the intervention of the Greek prime minister and the fact that a chief negotiator was nominated, discussions are still problematic.

The fact that meetings between the technical teams and Greek ministers are not allowed stands in the way of the teams getting acquainted with ministerial proposals. The technical teams are not even assured whether ministers want the programme to exist at all, while at the same time laws are being proposed, which are contrary to what has been discussed in Brussels at the technical levels.

The retirement system, the VAT changes, the employment reforms are the areas the IMF deems crucial for achieving an agreement. According to sources, at the meeting in question Thomsen explained that IMF’s process cannot be changed, and any package must ensure the viability of the debt.

Despite publications saying that Thomson insists on cutting the Greek debt, he himself advised the board members that he never put pressure on European partners to reduce the Greek debt, but stressed how important it is to keep it viable.

The conditions

During the meeting, it was underlined that the tranche will not be dispatched unless an agreement is reached at the level of institutions and unless the programme is funded for the next 12 months. In the case of Greece, this means that an agreement on the next programme is necessary to make sure that the financial needs of the country are covered.

At this point of the discussion, it was also mentioned that, on the contrary, the continuation of the ECB funding does not need an agreement, but only "reasonable assurances" that the negotiations will end successfully.

So, in a somewhat oblique way, the ball is lobbed at the European partners’ court as they will be the ones to tell whether progress is good enough to trigger the lifting of Greek liquidity restrictions.

The sector which has seen some progress is that of the VAT system changes. The Greek authorities are willing to unify the rates, which will increase the tax base and revenues.

The problem-ridden sectors are the following:

Finance: It is clear that the target primary budget surplus of 3% will not be achieved, and the deficit is impossible to predict. According to technical team members, the crucial problem is that the Greek authorities believe they are capable of achieving the target without resorting to extra measures with immediate financial results.

The social insurance system: It has been emphasised, that the social system expenses are the only ones that, instead of going down, have even increased as a percentage of GDP up to 10%: something completely unacceptable.

The reforms

As regards structural reforms, the meeting highlighted the significant delays and cancellations of reforms agreed in the programme. At the same time, on employment the Greek government shows tendencies to go back on policies that have already been agreed. Re-appointments of civil servants were mentioned; it was also emphasized that despite the government's pledges in support of reforms, it hasn't specified what kind of reforms it wishes to apply.

Privatisation was depicted as a rather fuzzy affair for the scores of conflicting publications and statements.

Deafult on payments

On the subject of non-payment an agreement was thrashed out that if a default were to take place, the IMF’s Executive Board would be informed the same day. The steps this will trigger are: firstly, figuring out what the government's intentions are and then identifying the legal consequences of such a default. It was mentioned that it is not clear how the ECB will react if Greece defaults on its IMF loan. It is unclear whether the ECB will continue to support Greek banks.

The Greek representative argued that if the technocrats had a little more time available to convince Greek politicians, then a solution would be possible. But he also pointed out that time works against Greece and the process should be sped up.