Greece needs €60 billion in new financial help over the next three years and faces decades under a daunting mountain of debt that will make it vulnerable to future crises, the International Monetary Fund has warned.

In an analysis that lays out Greece’s economic dilemma, the IMF yesterday called for Europe to grant the country “comprehensive” debt relief, arguing for the doubling of the maturities on its debts from 20 to 40 years.

The fund’s assessment is likely to provide succour to the Syriza-led government which is campaigning for a No vote in a referendum on Sunday. But the IMF also blamed it for the country’s deteriorating situation.

Before Syriza took power in January, the economy had returned to growth and Athens had begun to put its debts on a sustainable path, the IMF said. However, the government’s decision to halt reform and privatisations and renegotiate the terms of its European-led bailout had led to a deterioration. The calling of a referendum followed by the shutting of banks and introduction of capital controls had only made the situation worse, it added.

The IMF released its analysis two days after Greece became the first advanced economy to default on the fund when it missed a €1.5 billion payment.

Negotiations

Yanis Varoufakis

, Greek finance minister, insisted bailout negotiations would resume immediately after the referendum even in the event of a No vote. However,

Jeroen Dijsselbloem

, chairman of the eurogroup of finance ministers, warned Greeks their future in the euro was at stake.

“One illusion must be swept from the table: that if the outcome is negative, then everything can be renegotiated and you will end up with an easier and more attractive package,” he said.

The euro zone’s leading central bankers are set to reconvene on Monday and will almost certainly toughen the terms of emergency loans to Greece’s largest lenders, officials said. That could push one or more of the country’s biggest lenders over the edge and hasten Greece’s exit from the currency union.

The ECB did not impose tougher discounts on the collateral Greek banks use to access loans on Wednesday to avoid claims that it was interfering in Greece’s referendum.

A senior IMF official also denied the fund was trying to influence the outcome of the vote by publishing its debt sustainability analysis.

New financing

The review – dated June 26th, the same day a referendum was called – said that even before this week’s events Greece needed €29.3 billion in new financing for the 12 months beginning in October.

Over three years from October, Greece’s total financing needs amounted to €51.9 billion, €36 billion of which would have to come from its European creditors.

With the expiry of the euro zone’s bailout, Greece would need a further €10 billion for the next four months, a senior IMF official said yesterday. Moreover, there was a very real possibility that this would rise again as a result of the deteriorating economic situation.

“Clearly this is subject to very significant downside risks now,” a senior IMF official said. “It is urgent that we get out of this current situation.”

The IMF analysis puts the onus on Greece’s euro zone creditors to grant it significant debt relief. Even with a new bailout, Greece’s “debt would remain very high for decades and highly vulnerable to shocks”, the IMF said.

Germany and other European creditors have opposed granting Greece any more debt relief until Athens has committed to and started to deliver economic and fiscal reforms.

– Copyright The Financial Times Limited 2015