IMF's Christine Lagarde backs more time for Greece

Christine Lagarde says that leaders in the euro area need to indicate "at which pace they are going to move towards banking and fiscal union"

The International Monetary Fund (IMF) head, Christine Lagarde, has backed calls for Greece to have more time to meet the targets of its bailout.

She said in a BBC debate held in Tokyo that this might be better than "frontloading heavily", or making Greece pay the most upfront.

But the biggest contributor to Greece's bailouts, Germany, rebuffed the idea.

"We have to stick to what we announced," Germany's Finance Minister Wolfgang Schaeuble replied.

The BBC World Debate

The BBC World Debate: Rescuing The Global Economy features IMF managing director Christine Lagarde and German Finance Minister Wolfgang Schaueble.

It will be first broadcast on BBC World on Saturday 11 October at 09:10GMT.

Greece has asked for two more years to meet the spending cuts demanded by its lenders, which include the eurozone countries through its bailout funds and also the IMF.

Ms Lagarde backed the calls, but Mr Schaeuble stuck to Germany's previous line that on the terms of the 130bn-euro (£105bn; $168bn) bailout - Greece's second since 2010 - Athens must be held to what it agreed.

At stake is whether Greece should receive the next tranche of the bailout, worth 31.5bn euros. Without it it risks running out of money by the end of next month.

Greece's finance minister Yannis Stournaras has been meeting inspectors from the country's international creditors all week in the hope of finalising a deal before next week's European Union summit.

"We think that an agreement could be close," Simon O'Connor, spokesman for the EU's financial and monetary affairs commissioner, Olli Rehn, said in Brussels ahead of a further meeting between the two sides on Friday evening.

'Overcome by next year'

Germany's Finance Minister Wolfgang Schaeuble calls for better financial market regulation

"I think it's even more important for sustainable growth that investors and consumers have some confidence," he said.

"We have to stick to what we announced and we have to implement it step by step. I am optimistic that in one year we will have overcome the most part of the uncertainty related to Europe."

Greece has argued that it has been through five years of recession already and, with shrinking tax revenues, cannot hope to meet its targets through cuts alone.

The IMF boss also took a more nuanced approached to austerity - the spending cuts demanded by lenders that have seen several heads of government in Europe ousted and violent street protests from Athens to Madrid.

Start Quote

Mme Lagarde has called for Greece to be given two extra years to meet its deficit reduction targets. Whether the rule of law and social cohesion can last two years is now a matter of serious concern”

End Quote

"If people stay away from the job market, they lose hope," Ms Lagarde said, "which is why it's critical that while maintaining those policies of fiscal consolidation where these are needed, there is also concern for growth, so that jobs can be created.

"But it's a factor of pace. You know, at which pace does it happen?"

The debate came after Greece on Thursday announced that unemployment in Greece hit a record 25.1% in July, with the level among young people reaching above 50%.

And the nation predicted its economy will shrink by 6.5% this year, much more than previously estimated this year, worse than a previous estimate of 4.8% in March suggested to its bailout lenders.

Greece also said its economy will shrink for a sixth year in 2013.

The Greek economy is surviving on its international bailouts, but Athens has been forced to impose tough austerity measures in return for the money - which has led to a fraught political situation.

Germany is the biggest contributor to the European Stability Mechanism (ESM), the new bailout fund that will eventually have a full lending capacity of 500bn euros by 2014.

Separately, Ms Lagarde also suggested that the ECB had room to bring interest rates lower to help flagging growth in the single currency area.

The European Central Bank's interest rate is at the record low of 0.75%.

Responding to the IMF's suggestion that the ECB had room to lower rates, ECB board member Benoit Coeure said that the ECB saw no need for rate cuts now.

"It remains an option of course, but the sense has been recently that it was not a priority. Our priority has been to address impaired transmission channels of monetary policy," he said, referring to the ECB's efforts to ease countries' high borrowing costs.

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