The International Monetary Fund has hit back at claims that it is demanding more austerity in Greece, as the Fund warned that the country's ambitious budget targets were "simply not credible".

Firing a broadside at Brussels and Athens, Maurice Obstfeld, the IMF's chief economist, and Poul Thomsen, director of the IMF's European department, said cuts to investment and discretionary spending had "gone too far" and would prevent the Greek economy from recovering.


They warned that demands by Greece's creditors for a sustained 3.5pc primary surplus - which excludes debt servicing costs - were unrealistic and unnecessary.

The IMF has previously insisted that a primary surplus target of 1.5pc of GDP is more realistic. It has also called for significant debt relief that goes beyond the action taken this month to reduce Greece's debt share by 20 percentage points.


The IMF's frustration casts further doubt on its participation in the country's third rescue programme, which is a key objective for eurozone governments in Germany, the Netherlands, and Finland.

See also this WSJ article:

Greece's crisis is approaching a potential breaking point after a year of relative calm, as a government with declining political stamina confronts creditors' unyielding demands.

The ruling left-wing Syriza party, grappling with slumping popularity, is considering the option of calling snap elections in 2017, as it loses hope of winning concessions on debt relief or austerity from the eurozone and International Monetary Fund.


Until November, Syriza was hoping that its latest talks with lenders would unlock fresh loans without further heavy austerity measures. Greek ministers, meanwhile, hoped to win clear European commitments on debt relief that would allow the European Central Bank to include Greece in its bond-buying program, delivering a potential boost to Greece's depressed economy.

However, negotiations this month have shown Greek leaders that they are caught between the demands of their most powerful creditors: Germany and the IMF.

Berlin is unwilling to commit to more than minor reductions of Greece's debt burden. The Washington-based fund is insisting on politically onerous overhauls including pension cuts, especially if Germany insists that Greece should run large budget surpluses.

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