European Council in Brussels, where leaders met to address the sovereign debt crisis in Europe (photo: Thierry Roge/Reuters)
EUROPE SOVEREIGN DEBT CRISIS
“What to me is critical—really a game-changing decision—is the leaders’ commitment and determination to provide support to countries until they have regained market access, provided that they successfully implement their programs. It means that the member states are committed to supporting other member states,” Lagarde said.
Helping Greece
The leaders of the 17 euro area countries have agreed to provide €109 billion in fresh financing for Greece. Together with voluntary contributions from the private sector and continued support from the IMF, this will close the financing gap in Greece’s budget and give the country the breathing room it needs to restore growth and competitiveness.
“What is critical to me is the fact that euro area member states have agreed to significantly improve the financing terms for Greece by extending the maturity of the loans and reducing the interest rates on loans granted by the EFSF going forward. That is clearly a major improvement,” she said.
Lagarde said the IMF remained committed to supporting Greece although she noted that no new request has yet been made for another IMF-supported program. “It is clearly the intention of the IMF to be an active participant in this program going forward, with a view to restoring growth, making sure that Greece can return to the market, and that there is a significant improvement of its debt sustainability,” she said.
Lagarde welcomed the agreement to involve the private sector through what European leaders are referring to as a “menu of options”, a step that is expected to provide €37 billion to the Greek rescue package.
European leaders also announced that the improved loan terms that have been agreed for Greece will be extended to Ireland and Portugal, the other two countries that have programs with the European Union and the IMF.
More flexibility
The European leaders also agreed to make the terms of the European Financial Stability Facility more flexible, a measure called for by the IMF in its recent assessment of the euro area.
The EFSF may now be used for precautionary lending in the euro area, and for recapitalizing banks through loans to governments―including for countries that do not have programs. “This flexibility is a key element, in the view of the IMF,” Lagarde said.
Strengthening economic governance
Lagarde also welcomed the commitment by European leaders to strengthen economic governance in the euro area. “Changing the rules of the game, making sure that there is economic governance, that there is effectively a government of the eurozone when it comes to economic and financial matters―that is also clearly something that reduces the level of uncertainty,” she said.
The IMF has called for stronger collective rules in the European Union to help enforce fiscal discipline and for completion of the European financial stability framework. Stronger economic governance will support confidence in the euro area and help calm down volatile markets that threaten to deter investment and lower growth.
