International Monetary Fund’s Christine Lagarde says that the Fund will participate in the Greek bailout program only if the debt is sustainable “in accordance with the IMF’s rules and on the basis of reasonable parameters”.

Lagarde, in an interview she gave to a number of European newspapers, also said that the Fund would like to see a 1.5% primary budget surplus in Greece. “In the long term, we believe that a 1.5% primary surplus is sensible given all that the economy has gone through, and given the Greeks’ capacity to reform”, IMF’s managing director said.

Here is the transcipt of Lagarde’s remarks on Greece:

QUESTION – You just made clear the IMF didn’t make any final decision on Greece. But did you make any progress in reconciling the two views, the European and IMF, regarding the long term fiscal surplus?

MS. LAGARDE – There are two aspects to it. One is short term, which is part of the ESM program and would be part of our own program– if we were to have one. And second, there is the longer-term fiscal path going forward, which will determine the debt sustainability analysis. In both areas, we need to converge as much as possible. But clearly, whatever the IMF would finance–if we were to join–would be on the basis of both the fiscal path and our debt sustainability analysis.

In the long term, we believe that a 1.5% primary surplus is sensible given all that the economy has gone through, and given the Greeks’ capacity to reform. If the Europeans determine differently, then we need to take that into account. But we cannot adopt unreasonable forecasts or build unjustifiable macroeconomic frameworks.

QUESTION – Is it conceivable that the IMF would not take part in the program? There are also grumbles on Capitol hill about the IMF lending too much money to Greece for too long. Do you have to balance these two dimensions?

MS. LAGARDE – It is plausible that the IMF would participate in a Greek program, as the Greek government has requested, if significant reforms are legislated to be implemented, and if debt is restructured to accommodate our debt sustainability analysis–conducted in accordance with the IMF’s rules. So, it is plausible. And we have seen progress on the first part.

The volume of our possible financial commitment is not going to be necessarily the most important contribution that we make–because the European Stability Mechanism is very well financed. It is more our discipline, our integrity, and our expertise generated over so many years that is actually a greater value to Europeans.

QUESTION – Without a debt restructure upfront, the IMF will not participate?

MS. LAGARDE – If the Greek debt is not sustainable in accordance with the IMF’s rules and on the basis of reasonable parameters, we will not participate in the program.

QUESTION – Is the staff of the IMF now convinced that the debt is not sustainable as it is?

MS. LAGARDE – Based on the debt sustainability analysis, we will determine how much debt needs to be restructured. But there is no question in our mind that a degree of debt restructuring is needed.

QUESTION – Why is the IMF taking even more time than the Eurogroup to decide on Greece?

MS. LAGARDE – Because we want ‘two legs’ for the program. We need solid reforms, and we are getting there: the team is going to be back in Greece to negotiate, fine-tune, put things on paper, so as to be a binding agreement between all the parties. So, we need solid reforms–and we need debt that is sustainable. And for that, restructuring will be needed. We do not have that yet, and the discussion on that needs to be completed.

Christine Lagarde (l) and Angela Merkel (r), during the EuroSummit on Greece, June 22 2015 [photo via The European Union]
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