THE EU faces a crisis that threatens the sustainability of the eurozone after the International Monetary Fund warned that Greece’s debts are on an “explosive” path despite years of austerity measures and economic reforms.

Global financiers at the IMF are increasingly unwilling to fund endless bailouts for the eurozone’s most troubled country, passing more of the burden on to the EU at a time when Germany does not want to keep sending cash to Athens.

The assessment opens up a fresh split with Europe over how to handle Greece’s massive public debts.

The IMF called on Europe to provide “significant debt relief” to the country despite Greece’s EU creditors previously ruling out any further rescue programme until the current one expires in 2018.

Jeroen Dijsselbloem, the Euro group president, repeated that position last night (Tuesday night), saying there would be no Greek debt pardon and dismissing the IMF assessment of the country’s growth prospects as overly pessimistic.

“It’s surprising because Greece is already doing better than that report describes,” said Dijsselbloem, who chairs meetings of eurozone finance ministers, adding that Greece was on track for a “pretty good recovery at the moment”.

The renewed divisions over how to handle the Greek debt crisis have raised fresh questions over whether the IMF will be a full participant in the next phase of the Greek rescue — a key condition for backing from the German and Dutch parliaments.

As Angela Merkel, the German chancellor, fights a tough re-election battle, Germany is particularly reluctant to send funds directly to Greece, with populist parties arguing that the payments amount to an unfair bailout from hard-working Germans to less deserving Greeks.

The IMF split came as Theresa May Tuesday night comfortably defeated a Brexit rebellion in the Commons after MPs rejected Labour plans to give Parliament a “meaningful” vote on the terms of a final deal.

Despite suggestions that up to 30 Tory MPs could defy their party whip and back the Labour amendment, just seven chose to do so.

May stemmed the rebellion after the government pledged to hold a vote on the deal before it is sent to the European Parliament.

However, ministers said that MPs would have to “take or leave it”, meaning that May is prepared to walk away from Europe without any deal if Parliament rejects the one on the table.

A fresh crisis over Greek debt could be triggered as soon as July when Greece is due to repay some 7 billion euros to its creditors — money the country cannot pay without a fresh injection of bailout cash.

Gero Breloer/The Associated Press
Gero Breloer/The Associated PressGerman chancellor Angela Merkel is fighting a tough re-election bid and would have a hard time convincing voters to send more money Greece's way.

Beyond the long-running concerns over Greek debt, Europe is currently locked in an internal struggle over how to “refound” the European Union in the wake of Brexit and the apparent hostility now emanating from White House.

Merkel acknowledged the calls for change from within the EU yesterday while on a trip to Poland, but said she would argue that the EU should “proceed very cautiously” on the question of treaty change as it faced down a growing number of existential threats.

Reluctant EU members, led by Poland, are calling for a return to the EU founding principles, asking for a fundamental overhaul of treaties that would return power to nation states.

An EU “concept paper” launched last week ahead of the 60th anniversary celebrations of the Treaty of Rome next month has deepened divisions after it emerged that it did not contain a single mention of the member states, only the EU institutions, according to a senior EU diplomatic source.

Greek GDP has started to grow, expanding by an estimated 0.4 per cent last year, but it is on a very weak path. IMF economists expect the country to grow at less than 1 per cent per year over the long term, which is too low for it to pay down its debts.

That means Greece’s “public debt remains highly unsustainable, despite generous official relief already provided by its European partners”, the IMF believes.

Even if the country successfully implements all its planned financial and economic reforms — which has been a struggle so far — its debt is projected to fall from 179 per cent of GDP a year ago to 160 per cent of GDP by 2030 “but become explosive thereafter”.

“Greece cannot be expected to grow out of its debt problem, even with full implementation of reforms,” the IMF warned.

Despite Euro group protestations that the Greek bailout was sustainable, the IMF estimates that by 2060 its debts will amount to a crushing 275 per cent of GDP.

The IMF said progress to date in turning the crisis around has been “significant” but also acknowledged that the deep cuts to public services and pensions had come “at a high cost to society, reflected in declining incomes and exceptionally high unemployment.”

Unemployment is currently still stuck at above 23 per cent.

The IMF is very clear about who it believes should give Greece more money to try to turn this situation around.

“Greece cannot restore debt sustainability through its efforts alone and needs significant debt relief from its European partners,” the IMF said.

The Daily Telegraph