Massive new debt relief for Greece would give the economy a chance to recover and over time become self-supporting, a senior International Monetary Fund official said on Tuesday.
The IMF updated its projections on Monday of Greece’s financing needs and concluded that the country’s debt situation was “unsustainable,” said the official, who spoke on condition of anonymity.
That means the country’s European creditors need to either write down the debt they are owed, or give Greece a grace period of as long as 30 years.
Over the last two weeks the amount of capital Greece needs to avoid financial ruin has ballooned to $85 billion euros from $60 billion euros, largely because the banking system will have to be recapitalized, the official said.
The debt relief would be needed if the IMF was to participate in any new Greek bailout. IMF rules prohibit lending to a country unless public debt is considered to be on a sustainable path. Greece has missed a payment to the IMF, and would also have to clear those arrears.
But the IMF official said that if European countries provided debt relief, Greece could recover.
“We have made it clear … we need a concrete and ambitious solution to the debt problem,” the official said. “I don’t think this is a gimmick or kicking the can down the road … If you were to give them 30 years grace you are allowing them in the meantime to bring down debt by … getting some growth back.”