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Greece must stick to bailout terms: IMF's Lagarde

International Monetary Fund (IMF) Managing Director Christine Lagarde smiles during a group photo session before the Turkey Investment Advis
International Monetary Fund (IMF) Managing Director Christine Lagarde smiles during a group photo session before the Turkey Investment Advis

WASHINGTON (Reuters) - Political leaders in Greece need to show the resolve to stay in the euro zone, which will require Athens to stick to the terms of its rescue package, International Monetary Fund Managing Director Christine Lagarde said on Thursday.

"I think what we should look at is the optimal scenario where the country has the political resolve to actually observe the commitment, comply with the undertaking, stay within the zone, which seems to be the desire of the population," Lagarde said in an interview on Dutch television.

"But it goes with the effort to abide by the program which has been put in place and where the euro partners actually agreed to support the country."

Euro zone exit "would be extremely expensive and hard, and not just for Greece," Lagarde said.

In May 6 elections, Greeks voted resoundingly against the tough deficit reduction terms that are tied to Athens' European Union/IMF rescue package. The budget cutbacks have caused recession, youth unemployment to soar over 50 percent and desperate citizens to commit suicide.

None of the parties has succeeded in forming a new government and fresh elections are expected to be held on June 17, where opponents to austerity may strengthen their hand.

Meanwhile, Greece is in danger of running out of funds and European leaders, like the IMF, are warning that Greece must decide whether it is willing to accept the bailout terms to stay in the monetary union.

Pressed in the TV interview on whether the IMF sees a scenario where Greece leaves, Lagarde said: "It's not my hope. You always have, in whatever job you do, you have to prepare for the worst and hope for the best. We're certainly hoping for the best."

The IMF is making technical preparations for a Greek exit because that is its responsibility. "But I'm not suggesting, you know, that this is a desirable solution. I'm just saying this is within the range of multiple options, one that we have to technically look at, obviously," she said.

Lagarde added, however, that she sees a determination amongst European leaders to keep the euro zone on track.

"If I knew (that the euro zone will fail), I probably would not tell you. But it so happens that the political drive that I see, that I hear from the key leaders is to actually keep it together," she said in the interview on Dutch public television Nieuwsuur.

(Reporting By Stella Dawson; Additional reporting by Doug Palmer; Editing by Sandra Maler)

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