By Lesley Wroughton and Ingrid Melander, Reuters
WASHINGTON/ATHENS — IMF chief Christine Lagarde is warning Europe that Greece’s economic prospects are deteriorating and the European Union will either have to pony up more money to rescue Athens or debt holders will have to stomach steeper losses. Unless the private sector or the EU contribute more to Greece’s rescue, the International Monetary Fund will view the nation’s debt load as unsustainable and may be unwilling to deliver more funds, IMF sources told Reuters as Lagarde met with Germany’s and France’s leaders in Europe. Although the prospect of EU paymaster Germany coming up with more money seems remote, analysts believe European politicians and international lenders will eventually find a way to avoid a messy Greek default that would destabilize the continent and potentially undermine the global recovery.
But crafting a solution is growing increasingly difficult because IMF members, and in particular the United States and emerging countries, are reluctant to throw more money at Greece unless it is firmly back-stopped by fellow eurozone members. The sense of urgency has grown in recent weeks. Sources said the IMF now believes the economic slowdown under way in Greece and the euro zone as a whole is proving deeper than it expected when the latest bailout was approved in principle in October. The projected cost then was already a hefty 130 billion euros. No Room to Tighten Its Belt IMF officials acknowledge privately that Greece is already stretched to the limit by austerity programs, making further belt-tightening untenable and pressuring official lenders or bondholders to bear a greater burden. IMF and EU negotiators head to Athens next week for talks meant to nail down details of the new bailout program before Greece needs to redeem 14.5 billion euros in government bonds on March 20. Greek Prime Minister Lucas Papademos has said if a deal is not reached, a disorderly default could follow and that the country might have to abandon the euro. German Chancellor Angela Merkel and French President Nicolas Sarkozy told Greece on Monday it needed to move forward. Lagarde met separately with Merkel and Sarkozy on Monday and Tuesday. But talks aimed at getting private-sector creditors to shoulder a bigger part of a new Greek bailout are going badly, senior European bankers said on Wednesday, raising the prospect that eurozone governments will have to increase their contribution. Another senior IMF board member told Reuters time is running out. “The longer everyone delays tough decision, the more difficult it is becoming to pull Greece from the brink. We need to know that its debt is sustainable,” the board member said.