IMF will not declare Greece bankrupt until after referendum

DAILY SABAH
ISTANBUL
Published 30.06.2015 19:18
Updated 01.07.2015 00:24
Samples of sour schnapps, an energy drink and a vodka called “Grexit” with caricatures of Greek PM Tsipras (R) and Minister of Finance Varoufakis (L) raising their glasses under a miserable looking Angela Merkel
Samples of sour schnapps, an energy drink and a vodka called “Grexit” with caricatures of Greek PM Tsipras (R) and Minister of Finance Varoufakis (L) raising their glasses under a miserable looking Angela Merkel

The European Central Bank has become the guarantor of Greece, as the Greek government confirmed it will not pay the IMF debt leaving the country's fate up to referendum results

Greek Finance Minister Yanis Varoufakis confirmed on Tuesday, before the expiration of the bailout program at 8:00 p.m., Greece will not pay its 1.6 billion-euro debt to the International Monetary Fund (IMF). As Daily Sabah went on printing it remained unpaid. It was rumored before that Greek Prime Minister Alexis Tsipras was considering a last-minute bailout proposal by the European Commission (EC). "The prime minister's office has told Brussels that it is evaluating yesterday's new proposal of the EU Commission President [Jean-Claude Juncker], which included debt relief in October and changes in the EKAS [Pensioners' Social Solidarity Benefit] supplement [for low-income Greeks]," a Greek daily had reported, without specifying its sources.

Greece is set to become the first developed nation to not pay its debts to the IMF on time, as the country sinks deeper into a financial emergency that has forced it put a nationwide lockdown on money withdrawals. Greece has run out of money and after five months of talks with creditors, has no prospect of getting new rescue loans.

Finance Minister Yanis Varoufakis, asked whether Greece would meet Tuesday's repayment, replied: "no."

"The program runs out tonight, at exactly midnight central European time," German Chancellor Angela Merkel said in Berlin. "I know of no solid indications to the contrary."

The heightened crisis, which peaked over the weekend after Tsipras called a referendum on creditor proposals for reforms in return for bailout loans, has increased fears the country could very soon fall out of the euro currency bloc. Straight after the referendum call, in which the government is advocating a "no" vote, Greeks began rushing to ATM machines. The referendum is set for Sunday and the government declared all banks will remain shut for at least a week. Greeks have been limited to cash withdrawals of 60 euros ($67) per day. Capital controls began Monday and will last at least a week, an attempt to keep the banks from collapsing in the face of a nationwide bank run.

There was speculation Tuesday that an 11th-hour deal might be possible, with reports that Tsipras was to undertake an initiative based on an offer by European Commission President Jean-Claude Juncker. Markets in Europe rose on the hopes for a resolution of some kind.

"Of course, we are not going to cut off our channels of communication after midnight tonight," Merkel said. "That means that the door is open for talks, but that is all I can say at this hour."

Asked whether there was a chance of a deal, Varoufakis told reporters outside the finance ministry: "We hope."

Tsipras spoke by phone yesterday with Juncker, European Central Bank chief Mario Draghi and European Parliament president Martin Schulz, a Greek official said, but without revealing the content of the discussions. The official spoke on condition of anonymity in line with government regulations.

In Brussels, European officials said the Commission chief was willing to help give Tsipras a belated way out of his financial crisis if he accepts creditors' conditions and campaigns for staying in the euro. An EU official, who asked not to be identified because of the sensitivity of the talks, called it "a sort of last-minute offer" before Tuesday's dual deadlines. Tsipras would need to write to Juncker and other leaders saying he accepts the latest offer, which was on the table last weekend. He would also have to change his position on Sunday's referendum. Beyond accepting the creditors' proposal, Commission spokesman Margaritis Schinas said the offer would also involve unspecified discussions on Athens's massive debt load of over 300 billion euros and around 180 percent of GDP. The Greek side has long called for debt relief, saying its mountainous debt is unsustainable. Tsipras argues the demands from creditors for further, tougher austerity measures cannot be accepted after six years of recession.

European officials and Greek opposition parties have warned a "no" vote in the referendum will lead Greece out of the eurozone and potentially out of the broader 28-country European Union. The government has responded by saying this is scaremongering, and that a rejection of creditor demands will mean the country is in a better negotiating position. Tsipras was defiant in a television interview late Monday, urging voters to reject creditors' demands. More than 13,000 people gathered in Athens to support him and denounce Greece's creditors, as they chanted: "Take the bailout and go!" A protest by supporters of a "yes" vote was planned for Tuesday night, after Daily Sabah went on printing. On the streets of Athens, Greeks began adjusting to the new reality of restricted cash. Pensioners have been hit particularly hard, as many do not have bank cards and are completely cut off from cash. The finance ministry said it would open about 1,000 bank branches across the country for three days from Wednesday to allow pensioners without bank cards to make withdrawals. But the limit for them would be set at 120 euros for the whole week, rather than the 60 euros per day allowed for those with bank cards.

It's time for Greeks to decide

The IMF will give Greece two hours before it officially declares that the country cannot make the payment. At the end of these two hours, however, the IMF will still not declare that Greece has gone bankrupt. The European Central Bank (ECB) will then declare that deposits in Greek banks are under its own guarantee, at least until the June 5 referendum result is announced. If a "No" vote comes out of the referendum - meaning the Greek people will not vote for the IMF debt to be paid - then the ECB will end its role as a guarantor, it will stop helping Greek banks with the supply of emergency liquidity and the IMF will declare that Greece has gone bankrupt on the morning of June 6.

Following the IMF's declaration, Greece's credit note will fall substantially. But, in case a "Yes" vote comes out of the referendum, then the EU and IMF will determine a new road map depending on Tsipras' government's actions. If Tsipras' government resigns, then the ECB and IMF will continue to support Greece, and credit rating agencies will not revise the country's note. Tsipras said on a live TV program on Monday that he would resign if a "Yes" came out of the referendum. But in case the Tsipras government does not resign, then the EU and IMF will take a course of action to reflect the effects of the referendum's "No" vote.

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