Ambrose Evans-Pritchard — IMF stuns Europe with call for massive Greek debt relief

The International Monetary Fund has set off a political earthquake in Europe, warning that Greece may need a total moratorium on debt payments for 30 years and perhaps even long-term subsidies to claw its way out of depression. "The dramatic deterioration in debt sustainability points to the need for debt relief on a scale that would need to go well beyond what has been under consideration to date,” said the IMF in a confidential report. Greek public debt will spiral to 200pc of GDP over the next two years, compared to 177pc in an earlier report on debt sustainability issued just two weeks ago. The findings are explosive. The document amounts to a warning that the IMF will not take part in any EMU-led rescue package for Greece unless Germany and the EMU creditor powers finally agree to sweeping debt relief. This vastly complicates the rescue deal agreed by eurozone leaders in marathon talks over the weekend since Germany insists that the bail-out cannot go ahead unless the IMF is involved. The creditors were aware of the IMF’s report as early as Sunday, yet choose to sweep it under rug. Extracts were leaked to Reuters on Tuesday, forcing the matter into the open.…

The backdrop to this sudden shift in position is almost certainly political. It follows an intense push for debt relief over recent days by the US Treasury, the dominant voice on the IMF Board in Washington.