February 2, 2017
Three things are conspiring to lead Greece towards another conflict with euro zone creditors and another potential debt payments crisis. First, the government is finding it politically almost impossible to push through the reforms required to complete the second review of the bail-out programme. Second, some key euro zone governments facing populist insurgents at the polls are disinclined to make any concessions to Greece. Third, the long-running feud between euro zone institutions and the IMF over how to deal with Greece is coming to a head. In line with our long-standing forecast, we expect the government's political travails to mount in the coming months, and the risk of another early election is rising. We continue to forecast that Greece will leave the euro zone by the end of our medium-term forecast period.
Greece's euro zone creditors are insisting on completion of all reforms under the second programme review and on formal IMF participation in the bail-out programme before they release further funds to Greece. On January 30th Klaus Regling, the head of the European Stability Mechanism (ESM, an inter-governmental assistance fund for countries in the euro zone), the body responsible for loan disbursements to Greece under the third economic adjustment programme, said that Greece must complete the second programme review and the IMF must formally support the programme before the ESM would release further loan tranches. On January 31st the German Ministry of Finance made almost exactly the same points in a public statement.