The Greek finance Yanis Varoufakis urged creditors on Tuesday to ‘get their act together’ if they want Greece to repay its June IMF loan. And there are encouraging signs that the creditors have started to take seriously the realities of a possible Greek default that they have tried so hard to engineer since January.
Greece’s Europeans creditors on Tuesday sought to play down fears that Athens would default on a payment to the International Monetary Fund next week.
The threat of default and a possible Grexit, which has been held over the country and kept on the forefront of the financial press, has finally spooked financial markets as the digested conflicting messages and started to realise that a Greek default will take the European and global economies into uncharted territory.
Shut out of all forms of credit, Greece must repay a total of €1.6 billion to the IMF in June, with the first repayment due on June 5.
Alexis Tsipras’s government have openly admitted last week that Greece does not have the money to pay 300 million euros to the IMF on June 5.
The Tsipras government is likely to seek to combine four IMF repayments due in June and delay payment until the end of the month to gain more time for vital debt talks that will resume with the lenders on Wednesday.
The IMF, its biggest creditor after the European Union, often waits a month before receiving funds from debtor countries.
“That’s basically a technical treasury exercise and they could tell the IMF that this is how they want to do it and the IMF would probably have to be OK with that.” Said a Greek government official.
Could there be a change in the Schaeuble hard line as the markets get jitters at the prospect of a Greek default?
Still, the Greek government on Monday reiterated that it would try to make the payment and Finance Minister Yanis Varoufakis expressed confidence a deal with lenders would be struck in time to avoid default. Asked if Athens could make the payment, he said: “Of course, because there will be a deal by June 5.” This is not the first time that the Greek side has expressed its willingness to honour all its loan commitments not is the first time that the Greek government stated that an agreement with the creditors is near.
However it is the first time that the comments drew a positive reaction in Germany, Greece’s biggest creditor and one of its toughest critics in long-running aid negotiations with its EU and IMF lenders.
It is worth remembering that Greek default and Grexit scenarios and the rumours and leaks that fed these scenarios in the international financial press could mostly be attributed to the side of the German finance minister Wolfgang Schaeuble.
By contrast on Tuesday, a German official said: “I find it encouraging, if it is true, that the Greeks signalled yesterday their desire to repay the 300 million euros to the IMF on June 5,”.
This marks a departure from the Schaeuble hard line that has so far refused to give any credibility to any statements of optimism in relation to a settlement coming from the Greek finance minister.
“I think there is reason to believe that we will not be talking about a default situation around June 5, neither before or immediately thereafter.” the unidentified source told Reuters
European Commission President Jean-Claude Juncker – who has been in close contact with Tsipras through the slow-moving talks – also expressed optimism that Athens would pay up in time.
“My impression after talking to a series of colleagues is that the feeling is growing that a default should be avoided,” he told the MNI news agency. Asked how a default would affect the negotiations, he said: “The Greek colleagues have to know that we think they have to pay in June.”
Reflecting the slightly improved mood, a survey of mostly German-based investors showed the probability Greece leaving the euro zone in the next year has fallen to 41 percent in May from 49 percent in June.
The European creditors could accept 1 to 1.5 percent as a suitable primary surplus target for the year, but Athens would need to take additional budget measures to reach the goal, one euro zone official said.
“The process is much better, the substance is improving but we’re not there yet,” EU Economic Affairs Commissioner Pierre Moscovici told journalists in Dublin. “We are aware of the liquidity problems in Greece, this is why it so important that the negotiations speed up.”