Greece's debt crunch

The Economist

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The IMF turns down a Greek request to postpone next month's payments

Apr 16th 2015 | Europe

THAT Greece is becoming increasingly desperate in its search for funds to pay its creditors is well known, but Thursday’s news from Washington was striking nonetheless. Sources at the International Monetary Fund, the Financial Times reported, confirmed that Greek officials had asked whether it would be possible to postpone the country’s repayments to the group, which amount to €2.5 billion ($2.7 billion) in May and June. The IMF turned Greece down unconditionally. But the request showed that the Greek government itself is no longer confident it will be able to agree with creditors on reforms in time to unlock the bail-out funds it needs to avoid default. With Greece’s mercurial finance minister, Yanis Varoufakis, arriving in Washington today for the spring meeting of the IMF, the country seems to be edging ever closer to disaster.

The inquiry about delaying payments to the IMF was typical of the unpredictable behaviour of Greece’s new government, led by the leftist Syriza party. Within the Eurogroup of euro-zone finance ministers, the Greeks’ shifting demands and failure to respect confidentiality have destroyed their credibility. Other members have largely given up trying to understand Greek aims, and are instead setting conditions. On Wednesday Germany’s hard-line finance minister, Wolfgang Schäuble, demanded that Greece stop deluding its people and implement tough reforms quickly, saying the solution to the impasse was “entirely down to Greece”. The president of the European Central Bank, Mario Draghi, struck a similar note in a press conference Wednesday. Asked how long the ECB could continue to provide the emergency liquidity assistance (ELA) that is keeping Greece’s banks afloat, he said that was “entirely in the hands of the Greek government”, which needed to resolve its negotiations with the EU.

Greece and the Eurogroup need to agree on a list of reforms before the Europeans will release €7.2 billion in bail-out funds to repay Greek debts. Greece had hoped to reach an agreement before the Eurogroup’s April 24th meeting in Riga, but other countries say that is no longer realistic. Greece has made little progress in detailing the privatisations and pension and labour-market reforms the EU has demanded. The Greeks’ persistent failure to provide accurate information about their government’s own financial position—first warning they might run out of money in February, then March, then April—has heightened the mistrust, according to people familiar with EU negotiations.

In Washington, Mr Varoufakis may repeat the plea to postpone Greece’s upcoming payments to the IMF (€200m on May 1st and €750m on May 12th). He is unlikely to receive any support. He has won a meeting with Barack Obama, but diplomats say the two will only have a quick five-minute chat. Yields on Greek bonds rose sharply Thursday; the yield on 3-year government bonds soared to near 27%, the highest level since 2012. The Greek bond wobble was mainly due to the decision of Standard & Poor’s, the rating agency, to downgrade Greece’s long-term bonds from B- to CCC+ status. S&P's decision was partly based on its estimate that the Greek economy shrank by 1% over the last six months: a bruising possibility given that the Greek economy only exited a deep, six-year-long recession last year.

Back in Athens, meanwhile, political pressure on Syriza is mounting. On Wednesday Alekos Flambouraris, minister for coordinating government operations and Mr Tsipras's closest political confidant, hinted in a TV interview that a referendum could be held over whether Greece should stay in the euro. This would most likely return a “yes” vote, which could give Mr Tsipras an excuse to push out far-left members of his own party who have been blocking reforms. Time is short. Sources in the government say that unless the bail-out funds are unlocked it will run out of money at the end of April, and be forced to choose between paying salaries or paying the IMF. This time, they say, the deadline is real.

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