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Greece skips IMF payment, buys itself time

Euro & Finance

Greece skips IMF payment, buys itself time

Christine Lagarde [Reuters]

Greece bought time in debt crisis negotiations with official creditors, after it bundled four looming IMF loan payments into one, to be paid by the end of June.

The rare move, permitted by the International Monetary Fund only once before, allowed Athens to avoid a Friday deadline to remit about 300 million euros to the crisis lender, as it weighs the newest proposal from its IMF, European Commission and European Central Bank creditors.

Negotiations, which went into late hours Wednesday (3 June), are aimed at unlocking the final tranche of the bailout agreement, €7.2 billion.

Athens desperately needs the funds to honour debt payments amid fears a debt default could lead to a messy Greek exit from the eurozone.

For days the IMF had dismissed reports that Greece would invoke the “bundling” solution to the looming debt payment – essentially putting it off three weeks.

>>Read: How Greece hopes to make money

The announcement of it taking that option came just a few hours after IMF chief Christine Lagarde said she was “confident” Greece would make the 300 million euro remittance on Friday.

“The Greek authorities have informed the (IMF) today that they plan to bundle the country’s four June payments into one, which is now due on June 30,” IMF spokesman Gerry Rice said, citing rules allowing debtor countries to regroup “multiple principal payments falling due in a calendar month.”

A Greek government source said “we used an option that IMF rules offer us, and which give us additional time for negotiating.”

Lagarde: creditors showing flexibility

Greek Prime Minister Alexis Tsipras took back to Athens the latest proposals from the “troika” of lenders after a four-hour meeting late Wednesday with European Commission head Jean-Claude Juncker.

Eurogroup chief Jeroen Dijsselbloem, who attended the talks over dinner in Brussels Wednesday, told reporters it was a “very good meeting”.

>> Read: Greece edges towards default as crisis talks flounder

Greece is seeking less harsh fiscal and reform requirements attached to the loans from the three official creditors, who in turn have expressed dissatisfaction with efforts by the Tsipras government to roll back some earlier reform promises.

A Greek government source on Thursday laid out the key differences between the two sides, describing the troika’s position as “extreme” and “unacceptable”.

Begging in Athens.Begging in Athens.

The debtors were insistent on higher primary budget surplus targets than Athens would like, financed by increased rates of sales tax, cuts to civil servants’ salaries and to national pensions, the source said.

Low targets for the primary surplus – the government budget surplus before counting in payments on the national debt – would free up more money for social spending, and the Greek government has been adamant there will be no further cuts to salaries and pensions.

“Primary surpluses play an important role in growth. (A target) one percentage point lower signifies a sum of 1.8 billion euros that could be dedicated to the economy and not just to service debt,” the source said.

>>Read: EU deal puts Syriza’s unity to the test

German Chancellor Angela Merkel and French President Francois Hollande acknowledged “the necessity” to lower primary budget surplus targets during phone talks on Wednesday with Tsipras, according to separate Greek sources.

Athens has already made compromises on pension reform and sales tax.

Differences over a property tax and debt restructuring were also key sticking points, with the sole note of agreement on social security reform, the Greek government source said.

Seeking breakthrough

The country’s current 240-billion-euro bailout programme is due to run out at the end of June, and it and its creditors have been seeking a breakthrough in four-month negotiations.

The two sides have been far apart. Tsipras’ government has presented its own 47-page blueprint on how to overhaul the struggling Greek economy without resorting to harsh austerity measures that stifle economic growth.

Asian markets reacted to the IMF move with caution, as analysts said the decision was a delay, not a solution.

“The proverbial can has been kicked down the road toward the end of the month,” said Raiko Shareef, markets strategist at the Bank of New Zealand, according to Bloomberg News.

Tsipras’ leftist Syriza party was elected in January on promises to end five years of painful austerity measures that saw the Greek economy contract by a fifth.

The 40-year-old leader said that after months of often bad-tempered talks between Athens and its creditors, “there was proof from the Commission that it is at least disposed towards reaching a realistic agreement very quickly”.

Juncker said his officials were preparing “the next round of negotiations”, and European sources said another high-level meeting could be held in Brussels as early as Friday. Tsipras was also due to brief parliament on the talks on Friday evening, the government said.

Greek media said the government was hoping for a deal by June 14.

Any deal that does eventually emerge faces a major hurdle as the reforms would have to be approved by the Greek parliament.

Early elections?

Speaking on Friday, Greece’s Deputy Social Security Minister Dimitris Stratoulis, a hardliner in the government, said early elections could be called if the country’s international lenders do not soften their terms for a cash-for-reforms deal.

“The lenders want to impose hard measures. If they do not back down from this package of blackmail the government … will have to seek alternative solutions, elections,” he said.

Stratoulis is closer to the far-left faction of the ruling Syriza party, and it was not unclear if the statement represented a wider view within the party. But it underlined the deep anger at the proposal from lenders and a growing sense that the party will seek alternatives to avoid accepting the plan.


On 20 March, the European Commission offered Greece funds to deal with what it called a humanitarian crisis, after Prime Minister Alexis Tsipras vowed to clarify bailout reform pledges demanded by creditors.

Following crisis talks between Tsipras and European leaders, EU Commission chief Jean-Claude Juncker said he was making available €2 billion in unused EU structural funds to Greece.

>> Read: Greece promises to deliver full reform list after three-hour 'mini summit'

Greece secured a four-month extension of its financial rescue on 24 February, when its eurozone partners approved an economic reform plan that backed down on key measures and promised that spending to alleviate social distress would not derail its budget.

>> Read: Eurozone approves Greek reform plan with reservations

Germany's rejection of an initial Greek request for a six-month loan extension forced Athens into a string of politically sensitive concessions, postponing or backing away from campaign promises to reverse austerity, scrap the bailout and end cooperation with the Troika of EU, ECB and IMF inspectors, which are now called "the institutions".

>> Read: Greece, eurozone agree to four-month loan extension, avert crunch