Bankrupt Greece says it cannot afford to meet IMF repayments
Greece is bankrupt and will default on a debt repayment to the International Monetary Fund that is due in two weeks, the country’s interior minister said yesterday.
The declaration comes as the Left-wing government struggles to pay pensions and public sector wages, and talks between Greece and the IMF remain deadlocked.
‘‘The four instalments for the IMF in June are € 1.6 billion (NZ$2.4b). This money will not be given and is not there to be given,’’ Nikos Voutsis said.
Without a deal to unlock eurozone loans, Greece will be unable to pay IMF bailout instalments due next month, with further payments of more than € 5b owed to the eurozone and the fund in July.
The first repayment to the IMF of € 307 million is due on June 5, followed within days by payments totalling more than € 1.2b.
Eurozone and IMF officials are withholding € 7.2b in bailout loans until Greece honours commitments to austerity measures, including cuts to pensions and labour reforms that make it easier to cut wages or sack workers.
Without a deal, a Greek default will trigger a eurozone crisis this northern summer, leading to the introduction of capital controls, plunging Greece into economic meltdown and potentially causing the break-up of the euro.
Yanis Varoufakis, the Greek finance minister, warned that it would be ‘‘catastrophic’’ if Greece left the euro, marking ‘‘the beginning of the end of the common currency project’’.
He called on the eurozone to climb down on its ‘‘red line’’ austerity demands as the EU, IMF and Greece hold frantic negotiations to avert a default.
‘‘It is now up to the institutions to do their bit. We have met them three-quarters of the way,’’ he said.
Shut out of bond markets and with bailout loans blocked by the IMF and the eurozone, the Greek government has already raided its cash reserves and emptied state coffers to meet debt obligations of almost € 1b to the IMF last month.
The cash crunch means Greece will struggle to pay public sector wages and pensions that are due at the end of this week as pessimism deepens over the country’s prospects.
Foreign tour operators are now forcing hoteliers in Greece to sign contracts with a Greek default clause, and many companies have moved cash reserves abroad as the liquidity shortage bites.
Research by I Kathimerini, the Greek newspaper, found that 85 per cent of the cash reserves – more than € 9b – held by the 233 Athens-listed firms had been moved out of the country over the past seven months.
‘‘We need to minimise the unforeseeable consequences from possible capital controls,’’ one company told the newspaper. ‘‘We never expected we’d be in May without a decision on the country’s funding.’’
If Greece announces a default on June 5, the country would be expected to announce preparations for capital controls and the possible introduction of a parallel currency of state IOUs over the following weekend. On June 7, G7 leaders will meet in Germany for talks that could set the scene for a Greek exit and the end of the euro as a monetary union of 19 countries.
Talks have been deadlocked since Syriza came to power in January after pledging to oppose the austerity measures.