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It’s crucial that a Eurogroup meeting next week result in a deal on how to manage Greece’s debt, said International Monetary Fund Managing Director Christine Lagarde on Friday. The IMF chief will cut her tour of Asia short to attend the meeting in Brussels on November 20.
A release of 31 billion euros in emergency loans needed to keep the Greek government from going into default is being held up by disagreements between euro-zone governments and the IMF over how to tackle Greece’s mountain of debt. The goal is to ensure that Greece “can operate on a sustainable basis” and “re-access markets as early as possible,” said Lagarde.
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Earlier this week, Lagarde publicly disagreed with euro zone finance ministers who suggested that Greece should be given until 2022 to lower its debt to gross domestic product ratio to 120 percent. Lagarde insisted that Greece hold to the existing target of 2020.
Eurogroup president Jean-Claude Juncker also expressed hope that the meeting on Tuesday would clear the way for Greece to receive the latest tranche of bailout cash, but disagreed with Lagarde over extending the debt-to-GDP ratio target. Juncker is one of the policymakers in favor of pushing back the deadline to 2022.
Greece’s total debt is now at 170 percent, and is forecast to rise to nearly 190 percent of gross domestic product by 2014, making it highly unlikely the country will be able to reduce that to 120 percent of GDP by 2020.
But Lagarde doesn’t want to give Athens a free pass. According to the IMF, a debt-to-GDP ratio of 120 percent is the maximum sustainable level in the long term. Allowing Greece to maintain high levels of debt isn’t doing the country any favors, and further, would drag on wider recovery efforts in the euro zone, which slipped back into recession for the second time in three years in the third quarter, according to data Thursday.
The recession didn’t come as a surprise, said Lagarde. The IMF had forecast another euro-zone recession in 2012, but believed growth would pick up in 2013.
“I certainly hope that will be the case in 2013 if policymakers will actually act and do what is necessary and appropriate to recover from the crisis.”
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