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Tuesday 30 June 2015

Greece's last-minute defaults on IMF payment despite last-minute overtures to creditors

Greece's last-minute overtures to international creditors for financial aid on Tuesday were not enough to save the country from becoming the first developed economy to default on a loan with the International Monetary Fund.

The IMF confirmed that Greece had not made its scheduled 1.6 billion euro loan repayment to the fund. As a result, IMF Managing Director Christine Lagarde will report to the global lender's board that Greece is "in arrears," the official euphemism for default.

Fears of a Greek default have unnerved financial markets on concerns that it would ultimately lead to the country's exit from the euro common currency. The fate of Greece's membership in the 19-nation currency bloc still hangs in the balance ahead of a referendum on Sunday when Greek citizens will vote on whether to accept the austerity terms of continued international aid.
President Barack Obama said on Tuesday the financial crisis in Greece should not create a major shock for the U.S. economy, but warned that its fallout could dampen global growth.

IMF spokesman Gerry Rice said Greece can now only receive further funding from the global lender once the arrears are cleared. He confirmed that Greece asked for a last-minute repayment extension earlier on Tuesday, which the fund's board will consider "in due course."

The left-wing Greek government's 11th-hour bid for an extension of its international bailout and a two-year funding and debt restructuring program offered no concessions to creditors' demands for economic reforms, according to text seen by Reuters.

A one-page letter from Greek Finance Minister Yanis Varoufakis to the chairman of the Eurogroup of finance ministers of the euro zone said Greece was "fully committed to service its external debt in a manner that secures the viability of the Greek economy, growth and social cohesion."

But it made no mention of the conditions set by Greece's three lenders - the European Commission, the European Central Bank and the IMF - for releasing frozen aid to avert defaulting on the IMF repayment. Instead, Varoufakis cited legal grounds for requesting a two-year loan of an unmentioned amount.

"The loan will be used exclusively to meet the debt service payments of Greece's external and internal debt obligations," he wrote. It was not clear whether that includes payment arrears to Greek government suppliers, civil servants and others.

The letter went on to say, "Until this loan is agreed and in force, Greece requests for the program to be extended by the Eurogroup for a short period of time in order to ensure a technical default is not triggered."

Before the payment deadline, Varoufakis indicated on a call with European counterparts that Athens might scrap the upcoming referendum if a deal was reached, according to euro zone sources.

But the latest Greek proposals came too late to prevent Greece's existing aid package - with locked-up funds it needs to pay wages, salaries and debt - from expiring at midnight.

Now, Greece will lose access to a 1.8 billion euro loan tranche and 10.9 billion euros for recapitalizing banks.

› U.S. urging parties to press forward on Greek negotiations
› Dijsselbloem says Greece's stance must change for new bailout

The flurry of diplomacy came as tens of thousands of people descended on Athens' central Syntagma square over the past 24 hours in two different rallies - one to reject additional austerity measures and the other to push for Greece to agree to the terms in order to keep the financial spigot open.

In a sign that European officials have not given up on finding a solution, finance ministers said they would confer on Wednesday over Greece's latest loan request and debt restructuring.

It was unclear how much the Wednesday call could achieve. Trust between Athens and European capitals is in tatters after five months of acrimonious negotiations, and the relationship further deteriorated after Athens on Saturday decided to put creditors' proposals to a referendum.

Greek Prime Minister Alexis Tsipras has said the plebiscite is the democratic way for Greeks to decide if they will accept more budget cuts and taxes in return for international aid. He has urged a "No" vote.

German Chancellor Angela Merkel has ruled out further negotiations until after Sunday's referendum.

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