IMF involvement will require a large debt re-structuring for Greece

The Eurogroup confirmed that the IMF has not yet committed to any funding and will take its decision in October, once Greece's pension reform is specified. Hence, should the IMF not be involved, the ESM would have to provide the whole package, excluding the expected privatisation proceeds and the market funding.

From the IMF point of view, the key issue remains the debt sustainability analysis. In July, the IMF made it very clear that it will not, at least at the beginning, be financially involved in new Greek bailout package. Indeed, two conditions need to be fulfilled for the IMF to lend money,i.e.,  the annual funding is secure and the debt is sustainable. 

However, in its latest update of the debt sustainability assessment, the IMF stated that the second condition would be met if and only if a significant debt restructuring is agreed upon. The IMF argued that the need for debt relief would need to be well above what has been considered so far by the euro area leaders and suggested three options:

1. A dramatic extension of the maturity (at minimum a doubling to 40 years) with a 30 years grace period on the entire European debt (including the new financing)
2. A haircut worth 30% of GDP at least
3. Or explicit annual transfers. 

Options 2) and 3) have been ruled out by EU leaders. A re-profiling of the debt is clearly envisaged after the first review (i.e. towards the end of the year) but whether they can agree on a doubling of the maturity of both the Greek loan facility (first bailout) and the EFSF (second bailout) and agreeing the same terms on the ESM bailout remains unclear at this point. The IMF highlighted that this was a preliminary assessment only, i.e. a final assessment may require an even larger debt re-structuring.