Greek crisis deepens on IMF loan default

Economic future could hinge on referendum as clock strikes midnight for beleaguered nation

As Athenians rallied underneath thunderclouds to show their support for keeping Greece in the eurozone of single currency nations, their broke government defaulted on a $2.2-billion payment to the International Monetary Fund.

At midnight on Tuesday, Greece joined Sudan, Somalia and Zimbabwe as countries in arrears to the IMF.

Also at midnight, the bailout assistance package that began in February 2012 formally expired, leaving Greece without access to any emergency finances.

In Washington, the IMF acknowledged that Greece had failed to meet its financial obligations on time and that no further financing would be sent until the arrears were cleared.

Gerry Rice, the IMF’s director of communications, confirmed the IMF received a request on Tuesday from Greece for an extension on their “repayment obligation that fell due today” and that it would go to the IMF’s board in due course. No other details were given.

Greece could enter this new phase of its history by turning back the clocks — a national referendum on Sunday could result in the eventual return of the drachma.

Meanwhile, Greek banks and stock exchanges are closed. Most Greeks can access their accounts only via ATMs and they are limited to daily withdrawals of $84, but there are reports banks may open for pensioners on a limited basis.

Hours before the missed deadline and the expiry of the bailout package, Greek Prime Minister Alexis Tsipras made another unexpected move.

On Tuesday morning, Tsipras urgently asked the Eurogroup of 18 finance ministers for a two-year, nearly $42-billion loan to help pay its forthcoming debts and restructure.

European finance ministers, in a hastily called teleconference call, refused. Dutch Finance Minister Jeroen Dijsselbloem, the president of the Eurogroup, said another call would be held among finance ministers on Wednesday to “discuss the state of play” concerning Greece.

“The old program will expire tonight . . . . The political stance of the Greek government hasn’t changed,” Dijsselbloem told CNN. He warned any new agreement with Greece would come with conditions adjusted to the reality that the Greek financial crisis has gotten even worse after the IMF default.

German Chancellor Angela Merkel also reacted negatively to Tsipras’s last-minute attempt after five months of arduous negotiations. Tsipras walked away from the latest round on Friday. Merkel appeared to suggest Germany would not discuss any new proposals until after the national referendum on Sunday.

European leaders have signalled to the Greeks that Sunday’s upcoming referendum (on the terms of a nowexpired bailout package) is really a vote on whether to remain with the euro or return to the drachma.

If a Yes vote is achieved, it is expected the anti-austerity Syriza government could fall and snap elections could be held.

Whatever happens on Sunday, the cold reality is Greece has an even larger bill to pay on July 20 and it simply does not have the money. Greece owes the European Central Bank $4.5 billion.

Greece’s fall into bankruptcy will probably not trigger a global financial crisis, said Jack Ablin, chief investment officer at BMO Private Bank based in Chicago.

The size of Greece’s economy should be put into perspective.

“Greece’s economy contributes less than 2 per cent of European GDP (gross domestic product) and it is so tiny that its output is equal to that of Pakistan,” Ablin said.

“This really is a political risk. For us in North America, it would be in our best interest to let the eurozone forgive the debt, let them stay in the euro and live happily ever after,” he added.

Regardless of the referendum outcome, if Tsipras’s Syriza party loses power there will be a political void that could possibly open the door to fringe groups like the neo-fascist Golden Dawn party gaining ground, he said.

Instability in Greece could lead to further engagement with Russia or China and that would drive a wedge between Greece and Europe. That could ultimately lead to Greece’s leaving the European Union and possibly even the North Atlantic Treaty Organization. On Monday, European Commission President Jean-Claude Juncker accused Tsipras on not being truthful to the Greek people about what was being negotiated. Juncker said he felt betrayed.

For the past five months, he said the EU had extended the $340-billion bailout program while negotiations to reach a more acceptable deal continued.

Euclid Tsakalotos, co-ordinator of the Greek negotiating team, shot back at Juncker on Tuesday, saying any breakdown in negotiations is unlikely to have one cause.

It is difficult to believe the proposal of the IMF and European lenders would have put aside, once and for all, the question of Greece’s exit from the eurozone, he said in a statement.

“It is difficult to believe, in other words, that the economy would have turned around, that we would have been able to keep our promises on fiscal surpluses,” Tsakalotos said.