As it is still unclear whether the IMF’s participation in the latest Greek bailout package worth EUR 86bn is secured, separate talks with the World Bank are ongoing.
With important debt interest payments worth EUR 7bn due in July 2017, the Greek government finds itself under increasing pressure to service these payments, particularly if the pay out of tranches from the current, third rescue package are jeopardized by the IMF’s abstention. The current bailout programme ends in the summer of 2018.
Since 2012 Greece has worked with the World Bank and last month applied for “financial assistance” worth EUR 3bn for “financing active employment policies and programmes”.
While the IMF´s participation depended on Greece´s debt sustainability and growth targets, there is an ongoing discussion on the possibility for the World Bank to replace the IMF, should the latter decide not to participate in the ongoing bailout. Officially, this notion is being denied, or considered impractical. Strategically, this move strengthens Greece´s negotiating position with its current creditors – a fact confirmed by the surprise reaction of Greece´s current lenders, notably Germany. Of course, the straightjacket put on Greece is not being removed. If anything, it would only be loosened a little should the World Bank agree to provide a loan. After more than seven years of austerity and multiple bailout packages, Greece´s situation is no less dire, with or without the IMF on board and with the IMF and World Bank assisting or neither of them participating. The strict rules Greece was asked to follow only allows the country to breathe easy until the next debt service payments are made. This hand-to-mouth existence appears to be the state of affairs for most of Greece´s population as well as its government.
The real question is whether the World Bank will indeed grant Greece this loan, which Greece officially applied for as financial and technical aid to implement structural labour market reforms (unemployment, competitiveness and social protection). In reality, of course, the funds may be used for quite a different purpose – i.e. to avert the looming sovereign default in July 2017. In accordance with World Bank procedures, any final decision on providing loans would be subject to approval by the bank’s board of executive directors. It is rather unusual for a developed country to seek assistance from the World Bank, given that the World Bank is known to assist impoverished economies. And yet, this may just be another symptom of where the treatment of a patient using the wrong medication has led the EU and Greece.