The Greek creditors — the European Commission, the European Central Bank (ECB) and the International Monetary Fund (IMF) — known as the Troika had been at odds for six years over the sustainability of Greece's three bailout programs.
The IMF did not join in the third bailout because it said any deal would have to involve debt relief, as its said the proposed bailout terms were unsustainable. The Commission and the ECB disagreed and continued to demand major tax and public spending reforms of Greece in return for bailout money.
The harsh austerity measures have become deeply unpopular in Greece, where there are frequent demonstrations against changes to the tax and pension system. Both the Commission and the ECB have been demanding swingeing fiscal changes in order to bring Greece into a surplus of 3.5 percent of GDP.
The IMF disagreed, saying in a report May 23: "Greece continues to face a daunting fiscal consolidation challenge. After seven years of recession and a structural adjustment of 16 percent of GDP, Greece has only managed to achieve a small primary surplus in 2015, and this due to sizeable one-off factors. This is still far away from its ambitious medium-term primary surplus target of 3½ percent of GDP."
Debt Relief Impasse Broken
The IMF remains a creditor of Greece because it still owes loans from before the third bailout. The IMF has — until now — refused to take part, financially, in the third bailout program unless Greece was allowed debt relief. However, the latest round of talks brokered a deal under which the Commission and the ECB would consider debt relief, paving the way for the IMF to join the third bailout program.
Late Tuesday (May 24) the Eurogroup issued a statement saying:
"Against the background of the forthcoming successful completion of the first review and the agreement on debt relief, the Eurogroup welcomes the intention of the IMF management to recommend to the Fund's Executive Board to approve a financial arrangement before the end of 2016."
However, there was a note of warning from European lawmakers, who said Greece was not conforming to the program as — although it was passing changes to its fiscal laws — it was not actually implementing them.
Former Belgian Prime Minister and leader of the European Liberals and Democrats, Guy Verhofstandt said:
"Greece is passing a lot of legislation, but is not implementing it. It is shocking to see that 74% of the legislation that has been adopted since the first bailout package has never been implemented. If we keep our eyes closed to this reality, the new tranche will again be a waste of tax payer's money.
"The marriage between Greece and its creditors can be described as one in which both partners cheat with mutual consent. However, most marriages break up when partners fail to tell each other the truth. To avoid a break-up, we need to come clean now," he said.