Greece wants to repay IMF loans early

According to calculations by the EU Commission, Greece had the highest national debt of all EU countries at 202.9 percent of gross domestic product (GDP) at the end of 2021. Above all, the repayment of the IMF loans, which have higher interest rates than the loans from the euro partners and the ESM euro stability fund, will ease the burden of servicing debt.

The early repayment is a signal to the financial markets. After Greece was still on the brink of bankruptcy in mid-2015, the country can now refinance itself on the market. Two weeks ago, the Greek debt agency placed a ten-year bond with a volume of three billion euros. The coupon is 1.75 percent. The issue was five times oversubscribed.

The former crisis country owes its regained creditworthiness above all to the European Central Bank’s (ECB) bond-buying program and the fact that around 75 percent of Greece’s national debt is with public creditors such as the ESM.

Also a symbolic step

In the crisis years from 2010 to 2018, aid loans of 289 billion euros flowed to Greece. 32 billion came from the IMF. With the repayment now planned, Athens is detaching itself from the drip of the Monetary Fund. This is an important symbolic step. Because the IMF played a key role in the rescue of Greece from the start.

As early as 2008, the fund had written a scathing report on the state of Greek public finances. He forecast the debt ratio to rise to 800 percent of GDP. The then conservative Greek Prime Minister Kostas Karamanlis managed to prevent the report from being published. But that only brought a reprieve. 18 months later, Greece lost its access to the capital market.

Secret meeting in the kitchen of a Davos hotel

Socialist Prime Minister Giorgos Papandreou, who was elected in October 2009, initially sounded out aid options at the IMF. During the World Economic Forum in January 2010, Papandreou had a secret meeting with Dominique Strauss-Kahn, then head of the IMF, in the kitchen of a hotel in Davos. Standing, the two discussed the possibilities of an aid program in the midst of scurrying cooks and waiters.

Strauss-Kahn rejected the IMF’s own aid program, but promised to convince the Europeans of the need for a joint rescue plan and, above all, to get the country on board that was essential: Germany.

Conversely, in Berlin, Chancellor Angela Merkel and her finance minister, Wolfgang Schäuble, insisted that the Monetary Fund be closely integrated into the Greece program, because the EU did not have crisis management instruments at the time.

The first aid package put together at the beginning of May 2010 bore the signature of the IMF with its rigorous austerity requirements and thus met Berlin’s expectations. But the fund recognized the conceptual weaknesses of the Greek bailout earlier than the EU and the ECB.

The focus was on austerity targets while the program neglected structural reforms. It also turned out to be a mistake that the politicians of the euro countries repeatedly delayed a haircut recommended by many experts in 2010 out of consideration for the European banks. It only came out in February 2012, and its impact quickly wore off.

Concern about Greece’s debt sustainability runs like a red thread through the IMF’s expertise. The fund therefore no longer participated in the third rescue package launched in the summer of 2015. However, he remained on board as one of the four creditor institutions, mainly at the insistence of Berlin, alongside the EU Commission, the ECB and the ESM.

The aid program ended in August 2018 with the payment of the last loan installment. Athens remained under stricter fiscal supervision by the EU. It is expected to end this summer. However, the Greeks still have to bear the legacy of the debt crisis for almost half a century: the repayment of the aid loans from the ESM and its predecessor EFSF will run until 2070.
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