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IMF moves a step closer to joining Greek bailout, sources tell CNBC

Matthew Lloyd | Bloomberg | Getty Images

As the Greek government and its creditors continue to be at odds over the need for further austerity measures, sources have told CNBC recent developments suggest the International Monetary Fund is moving closer to joining the bailout program.

Greece entered a third bailout program, worth 86 billion euros ($92 billion), in 2015 but the IMF has not been willing to sign up to the pact. There are still differences to be resolved, sources said.

The institution has argued that the Greek debt is unsustainable and until the measures agreed under the program show that they will lead to a more sustainable debt, the Fund is not stepping in.

A year and a half later the IMF has not committed itself to the program - a problem for countries like Germany, Finland and the Netherlands where the IMF's participation is interpreted as a key "credibility" factor. The institution led by Christine Lagarde has dealt with many bailout rescues across the world and apart from its financial contribution, it brings the technical expertise needed to manage these programs.

"The IMF is back at the negotiating table," a European official that follows closely the Greek bailout talks told CNBC on the condition of anonymity.

A second European official added that the chances of the IMF participating in the bailout have increased from 20 percent a few weeks ago to 40 percent, though there were still significant outstanding issues to resolve.

All sides have become closer on the basis of a "contingency plan". A key difference between the European creditors and the IMF has been on the right level of primary surplus that Greece needs. The IMF has always maintained that Athens should aim for a primary surplus of 1.5 percent of GDP, whereas Europe wants 3.5 percent.

The IMF seems now willing to accept the 3.5 percent target, at least for the next few years and as long as it delivers real policy reform.

The contingency plan would mean that Greece would have to legislate new measures worth about 2 percent of GDP to be applied in 2019 and 2020 – after the bailout expires in 2018, EU sources told CNBC. The aim is to ensure that the Greek debt becomes sustainable, just like the IMF requests.

Such measures would have to include changes to the pension system and the country's tax base. An EU official said that more than half of the Greek people do not pay income tax because the threshold is very high. Thus, one of the creditors' aim is to make the tax base broader but with lower tax thresholds, so contributions rise.

And to tackle the high pension deficit in Greece, creditors want a more modern system, whereby pensioners – who currently support their families -- do not receive as much money and the unemployed, families and younger people receive more benefits so that they are not dependent on the pensions of family members.

In case, Greece overshoots, the plan allows the government to use that space in the budget for growth-friendly measures, such as investments.

Eurozone finance ministers will gather on Monday in Brussels to discuss the developments in the Greek bailout. However, they are unlikely to strike a deal by then.

The IMF, Eurozone creditors and Greece need to have an agreement before July to ensure Athens receives new disbursements before new repayments to creditors are due.

The IMF directed CNBC to comments made by their spokesman Gerry Rice last week: "There has been progress in some important areas... However, differences remain in important areas… It's still too early to speculate on when an agreement might be reached and there is still much work to be done.".


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