Thursday 29 September 2016

Greeks hint that they may have to default

Published 21/05/2015 | 02:30

A man shouts in front of a police cordon blocking the way to demonstrating health workers in front of the Greek parliament in Athens on May 20, 2015. Health sector workers staged a 24-hours strike to demand funds and staff hires for the health sector. AFP PHOTO/ LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
A man shouts in front of a police cordon blocking the way to demonstrating health workers in front of the Greek parliament in Athens on May 20, 2015. Health sector workers staged a 24-hours strike to demand funds and staff hires for the health sector. AFP PHOTO/ LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
Greek Finance Minister Yanis Varoufakis gestures during his speech at an economic conference in Athens

Greece has raised the spectre of default after admitting that it will not be able to make a scheduled payment to the International Monetary Fund (IMF) next month unless it reaches a crucial deal to unlock much-needed bailout funds.

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The claim raises the prospect of default by the Mediterranean state within weeks, with the IMF due a payment on June 5.

Beyond that date, several more payments loom with the combined total coming in at about €1.5bn.

The admission by the senior Greek government politician heaps more pressure on both Athens and its creditors to clinch agreement, as anti-austerity protesters took to the streets of Athens.

Nikos Filis, a Syriza party member and the Greek parliamentary speaker, told a local Greek TV station that June 5 will be the "moment of truth".

"If there is no deal by then that will address the current funding problem, they won't get any money," he said.

The claim raises the negotiating stakes and perhaps focuses minds more closely on the need for a deal.

But it also highlights the parlous state of Greece's finances. A payment of €750m by Greece last week to the IMF was also made because Athens raided its IMF reserve fund.

Negotiations between Greece and its creditors have now dragged on for months.

A deal to extend the country's bailout by four months was secured in late February, on the condition Athens would make economic reforms, but the talks have encountered problems in a number of areas, most notably involving pension and labour issues.

The possibility of default brought on by a lack of cash has also raised speculation that capital controls could be put in place to ensure deposits don't flow out of the country.

Moody's Investor Service said yesterday that there was a high possibility of such a move.

It said that pressure on Greece's banking system is unlikely to ease in the next 12 to 18 months, leading to a negative outlook for the Greek banking system.

The European Central Bank's governing council met in Frankfurt yesterday to debate whether to tighten the rules on Greek access to emergency cash.

Bloomberg reported yesterday that Athens is to request the ECB to sign off on an increase of €1.1bn to the maximum emergency funding it can provide to Greek lenders. Filis' contribution aside, analysts and Greek-watchers largely believe that some form of deal is possible.

European Economics Commissioner Pierre Moscovici said that he believes that a deal is possible in the coming weeks following progress this month, a day after German chancellor Angele Merkel said the deadline was the end of this month.

Greek Finance Minister Yanis Varoufakis has said he believes that a deal could be possible next week, claiming it was "very close" and ruling out a Greek withdrawal from the Eurozone.

The prospect of default dented the euro.

The euro fell as low as $1.1065 yesterday, before rising to $1.1137 by mid afternoon.

Eurozone government bond yields were also lower, widening the gap between benchmark US and German yields further in favour of the dollar.

Eurozone finance ministers met in Brussels last week and noted that while progress had been made in the talks process, little or no progress had been made in terms of substance. Ahead of the Eurogroup meeting, Finance Minister Michael Noonan said he was concerned about the liquidity position of the country as payment deadlines loom.

In an interview with the 'New York Times', published yesterday, Mr Varoufakis, pictured, said he would resign rather than accepting "another package of economic policies that perpetuates this same crisis."

And he said the Greek economy was far worse off in recent months because of the "hard bargaining", which Mr Varoufakis described as a "short-term cost".

Asked if he was worried about the Greek economy, he replied: "Terrified. Terrified and aghast."

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