Greece needs both debt relief but also significant pension reforms, IMF’s Lagarde says




Greece needs significant pension reforms to make the system sustainable but this must be accompanied by debt relief from its European partners, International Monetary Fund (IMF) Managing Director Christine Lagarde said on Thursday in a press conference.

“I have always said that the Greek program has to walk on two legs, one leg it the one of significant reforms and the other one is a debt relief, we persist on that view: significant reform, debt relief. If the pension reform cannot be as significantly, substantially deeply reformed as needed, it will mean more debt relief on the other side”, she said.

But equally, she pointed out, no amount of debt relief will actually make the pension system sustainable.

Let me give you an example: for the financing of the pension system in Greece to be balance, each and every year the budget has to pay to the pension system 10% of GDP, this is not sustainable, the average in Europe is 2.5% of GDP. 10% is not sustainable, she added.

“So it all needs to add up but at the same time the Greek pension system needs to be sustainable in the medium and long term, and that requires taking short term  measures now that will last in order to make it sustainable,” she explained.

Lagarde also denied that the IMF was pushing for “draconian” measures in Greece:

“I mean, I really don’t like it when we are portrayed as draconian rigorous terrible IMF, because we don’t want draconian fiscal measures to apply to Greece , which has already made a lot of sacrifices. We have said all along that the fiscal consolidation should not be excessive, so that the economy could continue to work and eventually expand, but it needs to add up and the pension system needs to be reformed, the tax collection system needs to be improved so that revenue comes in, evasion is stopped, and the debt relief by the other Europeans must accompany that process.”

She added: So we will be very attentive to the sustainability of the reforms, to the fact that it needs to add up, and to the fact that it needs to walk on two legs, she added.

“That will be our compass for Greece, but we want that country to succeed at the end of the day, but it has to succeed in real life, not on Paper,” she said.

MRS. LAGARDE ANSWER (THE TRANSCRIPT):

I have always said that the Greek program has to walk on two legs, one leg it the one of significant reforms and the other one is a debt relief, we persist on that view: significant reform, debt relief. If the pension reform cannot be as significantly, substantially deeply reformed as needed, it will mean more debt relief on the other side. But equally, no matter how big the debt relief will actually make the pension system sustainable.

Let me give you an example: for the financing of the pension system in Greece to be balance, each and every year the budget has to pay to the pension system 10% of GDP, this is not sustainable, the average in Europe is 2.5% of GDP. 10% is not sustainbale. So it all needs to add up but at the same time the Greek pension system needs to be sustainable in the medium and long term, and that requires taking short term  measures now that will last in order to make it sustainable.

I mean, I really don’t like it when we are portrayed as draconian rigorous terrible IMF, because we don’t want draconian fiscal measures to apply to Greece , which has already made a lot of sacrifices. We have said all along that the fiscal consolidation should not be excessive, so that the economy could continue to work and eventually expand, but it needs to add up and the pension system needs to be reformed, the tax collection system needs to be improved so that revenue comes in, evasion is stopped, and the debt relief by the other Europeans must accompany that process.

So we will be very attentive to the sustainability of the reforms, to the fact that it needs to add up, and to the fact that it needs to walk on two legs. That will be our compass for Greece, but we want that country to succeed at the end of the day, but it has to succeed in real life, not on Paper.

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