Greece ready to continue default, bankruptcy talks
With $1.7B due at end of June, International Monetary Fund walks away from negotiations
After a series of last-minute talks with German Chancellor Angela Merkel and other European leaders, the Greek government said Friday it is ready to negotiate through the weekend to avoid a default and bankruptcy.
Greece owes the International Monetary Fund nearly $1.7 billion by the end of June. But on Thursday, IMF representatives walked away from the negotiation table in Brussels and returned to Washington, D.C.
“There are major differences between us in most key areas,” IMF communications director Gerry Rice told a Washington news conference. “There has been no progress in narrowing these differences recently and thus, we are well away from an agreement.”
Late Friday, the Greek government acknowledged the IMF’s departure, saying it understood the IMF preferred to be part of technical negotiations as opposed to political talks. The departure puts more pressure on the European Commission, the European Central Bank and Greece to find a solution.
However, Greece raised the possibility that perhaps the IMF’s retreat signals something completely different.
“Maybe the IMF believes the best solution would be to collect the money it had given until now to Greece and exit the Greek program. It therefore puts pressure on all sides, but mainly on Berlin, so that tough measures will be implemented to Greece, which would allow for the IMF to get its money back,” a Greek government statement said.
European Union leaders seem to be at the end of their rope. EU President Donald Tusk, formerly the prime minister of Poland, intervened to say that enough is enough and that Greece must respond to its creditors.
“The day is coming, I am afraid, when someone says that the game is over,” Tusk said.
If Greece defaults on its June payment, the anti-austerity government of Prime Minister Alexis Tsipras could fall, forcing Greece into a new election. Tsipras campaigned and won a general election earlier this year on a refusal to further submit to the creditors’ demands, such as pension reform, job cuts and tax increases.
He said these policies have ruined Greece, causing sky-high unemployment, civil unrest and high suicide rates.
Greece is seeking a new debt-repayment deal from the troika of lenders — the European Central Bank, the European Commission and the IMF. In order to keep Greece from default, a deal must be reached within days.
Sources close to the negotiations say the two are ideologically far apart on certain issues. For instance, the European Commission and IMF want Athens to raise the value-added tax (VAT) placed on certain goods and services.
Greece argues the VAT has been raised three times since 2010. “The new rise on the VAT that is being proposed by the creditors will be the fourth in five years,” a source said. The main rate has risen from 19 per cent to 23 per cent.
“The recent history has shown that each time we raise the indirect taxes, the result is a drop in consumption and an (increase) in tax evasion. Thus the revenue of the state diminishes instead of rising,” the source said, adding income from the VAT has decreased by 5 billion in the last six years.
Tax evasion has been a serious problem in Greece with some believing it has been a major factor in Greece’s current financial woes.
In negotiations, Greece has proposed a “trust-building” procedure that was rejected by the creditors, the source said.
“Athens proposed to agree on a common target regarding the revenue that should be collected from indirect taxes till the end of the year,” the source said.
That target is about a 1-per-cent rise and it would mean a VAT hike would be avoided.