Greece has moved closer to default and possible exit from the eurozone after telling the International Monetary Fund it would not be making a debt repayment of €300m (£219m) due on Friday.
A crisis that has been going on for more than five years entered a new phase when Athens surprised the IMF by saying it intended to bundle up four payments in June totalling €1.6bn and make them all at the end of the month.
The move came as the Greek government reacted angrily to what was seen as anultimatum from its creditors – including the IMF – that demanded further austerity and unpopular reforms to VAT, pensions and wage bargaining as the price for €7.2bn in fresh financial help.
Although Greece’s financial position has become increasingly serious in recent months, Athens had the ability to make the €300m payment and the country’s prime minister, Alexis Tsipras, gave the IMF managing director, Christine Lagarde, an assurance earlier this week it would be made on time.
Asked about the repayment due on Friday, Lagarde told reporters: “The payment had been honoured and will be honoured,. I think his words were, ‘Do not worry,.’ I’m confident that will continue to be the case.”
Instead, the decision to delay payments appears to be a show of defiance by Athens against what it sees as unacceptably harsh terms being demanded by its creditors. This increases the chances of Greece defaulting on its debts, losing the support for its weak financial sector from the European Central Bank, and eventually being forced to leave the single currency.
Fresh from talks in Brussels, Tsipras faced outrage on Thursday from highly sceptical members of his own Syriza party. A five-page ultimatum from creditors, presented by the European commission president, Jean-Claude Juncker, was variously described as shocking, provocative, disgraceful and dishonourable.
“It will never pass,” said Greece’s deputy social security minister, Dimitris Stratoulis. “If they don’t back down, the country won’t be lost … there are alternatives that would cost less than our signing a disgraceful and dishonourable agreement.”
Tsipras had presented the so-called troika of lenders – the EU, the ECB and IMF – with his own 47-page list of proposed reforms, but must now decide to accede to creditors’ demands or take on hardliners in his own party. Actions being asked of Greece include spending cuts and tax increases worth 2% of the country’s GDP in the form of pension and VAT reform – anathema to a party catapulted into office on the promise of terminating austerity.
On Thursday night Tsipras was seen to be leaning on the side of rejection. Officials described him as telling associates: “Such extremist proposals cannot be accepted by the Greek government. Everyone must understand that the Greek people have greatly suffered over the last five years and some have to stop playing games at their expense.” There was also speculation on that he will call a general election over the debt impasse.
News that Greece would not be making its scheduled IMF payment on time came after the close of European markets, but shares fell sharply on Wall Street.
The IMF issued a short statement in which it confirmed Greece’s plan to bundle up its June payments but stressed that the rules that permitted the move were supposed to be for countries facing administrative problems.
“Under an executive board decision adopted in the late 1970s, country members can ask to bundle together multiple principal payments falling due in a calendar month (payments of interest cannot be included in the bundle). The decision was intended to address the administrative difficulty of making multiple payments in a short period,” said IMF spokesman Gerry Rice.
Greece’s finance minister, Yanis Varoufakis, told Sky News: “Objectively speaking, we have until the 30 June because this is when the extension of the agreement with our creditors expires.”
But he conceded that Greece would be unable to continue making repayments at some point.
In Brussels, officials said Athens had 10 days to strike a deal. Technical teams of negotiators from the EC, the ECB and IMF hope to wrap up what is known as a “staff level agreement” by 14 June, four days before the next scheduled session of eurozone finance ministers and 11 says before a Brussels summit of EU leaders on 25 June.
Both Juncker and Jeroen Dijsselbloem, who heads the euro group of eurozone finance ministers, insisted that not enough progress had been made in the talks so far. The European commission chief said he would ask Tsipras back to Brussels for more negotiations in the next few days.