Greece Likely to Raid Pensions and EU Subsidies to Meet IMF Payments

BY LUKE HURST 3/3/15 AT 6:10 PM

Greece may be forced to tap into state pension and social security funds and even EU farming subsidies to meet their scheduled repayments to the International Monetary Fund (IMF) this month. It is expected to repay €1.5 billion in March, with €310 million due this Friday.

While short-term solutions for the March payments may be available to the new Greek government led by the left-wing Syriza coalition, experts say meeting further repayments scheduled this year to the European Central Bank (ECB) will require agreeing to a third bailout package.

If Greece fails to make its IMF payments it will be the first developed country to do so. Finance minister Yanis Varoufakis told the BBC at the weekend that the Greek government would “squeeze blood out of a stone” if needed.

Syriza was elected on a platform of ending austerity in Greece and pledged not to negotiate with the ‘troika’ of the IMF, EU and ECB but have been forced to make concessions during talks over repaying the countries debt whilst keeping it solvent and in the euro.

“The new government has always emphasised during the election campaign in January and December last year that it would honour its obligations to the IMF,” says Jens Bastian, an  economic analyst for Macropolis, an independent organisation which provides data and analysis on Greece.

“It has not moved away from that position. Greece’s exposure to the IMF is considerable and it’s not in the interests of the Greek authorities to default on any IMF obligation.”

He adds: “The Greek government has identified IMF payment as an absolute political priority. You may be able to solve repayment obligations in March. The bigger problems are looming around the corner in July and August.”

Dr Michael Arghyrou, director of the MSc in International Economics, Banking and Finance at Cardiff Business School agrees, says Greece has two options: default on obligations and leave the eurozone, or agree on a third bailout package. “[Greek prime minister] Alexis Tsipras clearly signalled that he does not want to risk Greece’s exit from the euro,” he says.

Making the payments in March will require digging into already depleted funds. “It’s scraping the barrel, and you cannot do that on a month to month basis,” Arghyrou explains.

“The public statements of government officials suggest they'll use reserves of pension funds controlled by the state and also money given to Greece by the EU such as agricultural subsidies. There are statements they will be used to pay for the IMF loans.”

“This amount of money due in March will be paid, but it only postpones hard decisions”, Arghyrou assures but adds that these measures will not be sufficient to repay what is owed to the ECB in the summer.

Arghyrou warns that Greece needs a last resort for emergency funding, and so cannot afford to lose the lifeline provided by the IMF.