Another Extension for Greece Now Seems a Sure Bet
The belief that Greece needs more time in order to salvage its economy started as a somewhat-expected plea from Greece itself. Now, however, the International Monetary Fund (IMF), government ministers and economists are convinced that the country needs more time to implement reforms and austerity cuts.
Christine Lagarde, managing director of the IMF , is the latest high-profile figure to say that Greece should be given two more years to reach its budget goals.
Speaking at the semi-annual summit of the IMF and World Bank in Japan, Lagarde said that heavily "frontloading" Greece with austerity measures too fast could undermine Greece's reform program and recovery.
"It is sometimes better to have a bit more time, " Lagarde told a news conference in Tokyo on Thursday. "This is what we advocated for Portugal, this is what we advocated for Spain and this is what we are advocating for Greece."
Michala Marcussen, global head of economics at Societe Generale, told CNBC that Lagarde is correct in her assessment of Greece.
"The reality is that Greece does need more time. When we look at the debt simulations, it's very unlikely that Greece will be able to achieve the targets set out in the program, " Marcussen said. "But this is where the challenge is. Greece needs more time, but at the same time, it will be very challenging to give Greece more money in the current context."
Lagarde's statement comes after the IMF issued a grim economic outlook for Greece on Tuesday, forecasting that Greek public debt would rise to 171 percent of gross domestic product (GDP) this year and 182 percent in 2013.
The predictions mean that Greece would be far from the IMF's target of 120 percent of GDP by 2020.
Lagarde echoed the German Chancellor Angela Merkel's words of support for Greece, but pushed the IMF's stance that a debt restructuring is needed , rather than more bailout funds with a punitive timeframe for repayments.
"We will spare no time, no effort, to actually do as much as we can in order to help Greece, " Lagarde said, adding that any additional tranche of funds were meant to get Greece back on its feet and not indebt it even further. "[The fund's purpose is] to make sure that Greece is back on its feet, that it can one day return to markets, that it doesn't have the need for constant support."
Lagarde's comments and the IMF's view that too much austerity too fast can damage the economy is echoed by Societe Generale's Marcussen. The real challenge was to find a sustainable solution to the growing Greek debt problem, she said, not more cuts that erode Greece's potential for recovery.
"The real issue is finding a durable solution for Greece, " she said. "What we really need for Greece to move ahead with greater priority on structural reform vis-à-vis austerity."
The IMF's Lagarde and Marcussen's statements come as two former finance ministers of Greece joined calls for a debt restructuring. They told CNBC on Tuesday that a debt write-down was "inevitable" as the country struggled with rising unemployment , a capital flight , and increasing social disorder .
George Papaconstantinou, former finance minister of Greece from October 2009 to June 2011, said the IMF's forecasted numbers were unsustainable.
"The Greek economy stopped growing sometime in 2008 and by the time we start growing again we'll have lost a quarter of Greek GDP, that's massive, it is huge, " Papaconstantinou said.
"If we recognize that there will have to be some movement on the debt, we will find a way, " he added, a sentiment echoed by Peter Doukas, Greece's former deputy minister of economy and finance.
Doukas told CNBC that an official debt haircut was "absolutely inevitable."
"The Greek debt is not repayable at this point, " he said. "The economy is too weak to afford a 300 billion euro-plus ($388 billion) debt."
Greece is still in negotiations with its troika of lenders (from the IMF, European Central Bank , and European Commission) over the next tranche of aid worth 130 billion euros ($167 billion) that prime minister Antonis Samaras says is urgently needed in order to keep the country afloat beyond November .
—By CNBC's Holly Ellyatt