Greece to bundle bailout payments

Published: Friday 5th June 2015 by The News Editor

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Greece is taking an unusual step in negotiations over its bailout programme by bundling together four payments to the International Monetary Fund (IMF) that are due this month into one payment on June 30.

IMF rules allow such a delay. Yet Greece’s decision illustrates how much it is struggling to meet its financial obligations without rescue loans that have been withheld since last summer.

Athens and its creditors have so far failed to agree on economic reforms as a condition of the bailout.

Prime Minister Alexis Tsipras failed to break the stalemate with creditors at a late-night meeting with European Commission head Jean Claude Juncker and the top official representing Greece’s peers in the 19-country euro currency alliance. Officials said the talks will resume in coming days.

On his return to Athens, Mr Tsipras told officials that his government won’t accept “extreme proposals”.

“Everyone,” he said, “must understand that the Greek people have suffered greatly over the last five years, and some people must stop playing games at their expense.”

Shortly before midnight, Mr Tsipras held a conference call with German chancellor Angela Merkel and French president Francois Hollande, his office said. No details were provided on the talks, which followed a similar call earlier this week.

Without a deal, Greece will not get the 7.2 billion euro (£5.2 billion) remaining from its 240 billion euro (£175 billion) bailout fund, which it has relied on for five years.

Greece would then struggle to pay upcoming debts and could soon go bankrupt. That step, in turn, could lead to Greece’s forced exit from the eurozone and inject new financial perils with a devalued version of its old national currency.

Greece’s request buys some time for a government that has resorted to forcing local authorities, hospitals and universities to lend it their cash reserves.

Under an IMF rule from the 1970s, a country can ask to bundle multiple payments if they fall within a single calendar month. Yet not since Zambia in the mid-1980s has a country made such a request, according to the IMF.

Greece’s first payment – slightly more than 300 million euro (£220 million) – was due today, part of a total of 1.6 billion euro (£1.2 billion) due to the IMF this month. Greece has bigger payments due to the European Central Bank this summer. But it cannot meet them without the rescue money.

An inability to repay creditors or pay pensions and public sector salaries could cause havoc involving capital controls and a Greek departure from the eurozone.

For now, the postponement of payments does not appear to limit the ability of Greek banks to draw emergency credit from Greece’s central bank, as permitted by the European Central Bank. An ECB spokesman declined to comment on the move.

At an emergency meeting with ministers yesterday, Tsipras called a parliamentary debate on the bailout negotiations.

Mr Tsipras’ radical left Syriza party, which governs in a coalition with the right-wing Independent Greeks, holds a majority in the parliament.

Growing dissent in his party has fuelled talk of another snap election this summer, which Syriza would probably win, according to opinion polls. But the uncertainty could further damage the economy, which is back in recession after a brief period of growth.

The finance ministry said reforms and tax measures advocated by the three institutions providing Greece’s rescue loans – the IMF, the ECB and European Commission – would deepen poverty and unemployment.

“The agreement that Greece – and Europe – needs demands an immediate shift by the institutions to more realistic proposals that will offer a prospect of recovery and social sensitivity,” a ministry statement said.

The deadlock in Brussels upset investors across Europe, with the main Athens stock market closing down 1.3%.

Mr Tsipras noted that progress had been made in Brussels on the scale of the budget surplus Athens must meet. But he said lingering disagreements over other issues, such as proposed sales tax hikes and pension cuts, mean an agreement isn’t ready.

A government official said Athens will sign only an agreement that contains a provision to ease its crippling debt load. The official also said creditors were demanding parliamentary approval of all requested reforms this month and their implementation from July 1.

Social security minister Dimitris Stratoulis told parliament that Greece’s acceptance of the proposals “would have been a disorderly retreat and an agreement to our submission”.

The government was elected in January on a promise to end the detested austerity measures that creditors have demanded in return for bailout cash over the past five years. A series of tax hikes and spending cuts have tamed Greece’s budget deficits. But the cost has been steep:

Average incomes have fallen by at least a third. Unemployment has shot up to 28%, with a million jobs lost. And the economy has shrunk by more than a quarter.

Published: Friday 5th June 2015 by The News Editor

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