Interview by Antenna TV of Greece with Poul Thomsen, IMF Mission Chief for Greece

April 15, 2014

Washington, D.C.
April 12, 2014

INTERVIEWER: Good morning. Thank you, Mr. Thomsen, for doing this. In the last days we have been hearing about the possibility of a third program. What are your estimations regarding the funding gap for 2015 and 2016, and how will the funding gap be covered?

MR. THOMSEN: We are still looking at refining the projections of what you call the funding gap, but it’s clear that, in our estimation, there is going to be a need for additional money from somewhere. We do not think that this financing gap can be financed in the markets, so one would need to find additional money, and we’ll have to talk to our European friends about that. But we are not talking about anywhere close to the numbers that we have seen in the past. By comparison to the past these will be small numbers.

INTERVIEWER: The critical question here is, what measures will it require?

MR. THOMSEN: We have a program in place, right? And we have a schedule of reviews in place, so it will just be tied to the existing schedule of reviews and the implementation of the agreed program.

INTERVIEWER: The IMF’s position is that the Greek debt is not sustainable, and has asked the Europeans in the past for a haircut in the official sector. Nowadays, my sense is that Europeans avoid discussing this issue and the IMF doesn’t support the haircut in the official sector as strongly as before. What is exactly going on?

MR. THOMSEN: It’s not correct to say that the IMF has asked for a haircut. We have never done so. Nothing has changed in our view of this. We have an agreed framework with the Europeans under which we were --in the middle of 2014 and the middle of 2015, in two steps –-to look at what is needed to be sure that debt is reduced to this program path of well below 110 percent of GDP by 2022. Nothing has changed on that. That framework is still there and Europe has recommitted to that framework.

Now, how exactly to achieve it? How exactly to lower debt to this level was never discussed in any detail. There are a number of possibilities for how to achieve it. It not necessary only through a haircut, so that discussion will take place. But again, nothing has changed on our part. We think it’s essential that Europeans stick to this framework of bringing debt well below 110 by 2022.

INTERVIEWER: Is there any chance the haircut will not happen?

MR. THOMSEN: Well, as I said, there would have to be a discussion on how exactly to achieve this lowering of debt to GDP. Again, it can be achieved in several ways; through interest rates, through transfers. This is a discussion that we are going to have. It doesn’t necessarily have to be through a haircut. There are other means too.

INTERVIEWER: When will you have these discussions?

MR. THOMSEN: That discussion will take place in the context of the forthcoming review. Not this review but the next one, so that discussion is going to start during summer and into the autumn.

INTERVIEWER: After four years of harsh sacrifices, Greece proved you wrong. Now that Greece has returned to the markets and has met most of the objectives of the Greek program, will there be a change in your policy because so far for four years you’ve been concentrating mainly on internal devaluation and not on growth?

MR. THOMSEN: I think this is an incorrect description of the program. I cannot quite recognize what you’re saying. The program has from the outset been full of measures on the structural reform side that are aimed at boosting growth and boosting employment. We have always had two sides; the fiscal side to reduce the fiscal deficit, and a great number of structural reforms across a broad area to try to improve growth and employment prospects.

What has happened is that whereas the fiscal measures were implemented as agreed, they were often short on the structural reform side, and we are slowly catching up on structural reforms again. In the context of this review there’s a really important redoubling of the efforts to liberalize product and service markets. The government is doing major effort in that area, and that is good news.

So, it’s not a question of if the program from the start has focused just on austerity. It has not. But in terms of the things that were implemented as planned, this was a part of the program that was on track.

INTERVIEWER: And from now on?

MR. THOMSEN: It is clear that fiscal adjustment is mostly behind us. Greece has definitely shown that it can deliver on the fiscal program, so there is a natural shift towards structural reforms, spending more and more of the political capital on pushing structural reforms. We are in a situation now where we are going to start seeing the economy going into a recovery, and that is going to make it easier to do some of these structural reforms.

INTERVIEWER: Something specific? What measures are you thinking of taking to help growth?

MR. THOMSEN: The measures that are in the program already and that will be implemented, some of them now and some of them through the remainder of this year, to open up the economy, to liberalize markets. There are very important measures already in this review, like the OECD toolkit that you hear so much about. These are very important measures.

Another one is the reduction in social security contributions, which will help improve competitiveness. The program is full of measures that will help boost growth over the medium term and increase employment.

INTERVIEWER: Is this a good time for Greece to go to the markets?

MR. THOMSEN: This was an important milestone. It is an important objective of the program to get Greece back to the market. This is a first step to have full market access. There is still certainly a long way to go before Greece can rely entirely on market financing, but this is very first important step, and I very much welcome it.

INTERVIEWER: Thank you very much.

MR. THOMSEN: You are welcome.


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