Thursday, April 16, 2015

Greece denies that it is making plans to default on debt payments

As has happened often during negotiations with its creditors, mixed and contradictory messages are coming from the Greek Syriza government.
The Financial Post reports that the Greek government is preparing to default on its debt if it can't reach a deal with the Eurogroup creditors by the end of this month. One government official claimed:“We have come to the end of the road . . . If the Europeans won’t release bailout cash, there is no alternative [to a default].” There are 2.5 billion euros of payments due to the International Monetary Fund in May and June. The government may be using the threat of default as leverage to receive a better deal from creditors but there is little sign that it is working.
Negotiators for the creditors appear to be exasperated by the Greek government's lack of movement towards presenting and implementing a set of acceptable reforms. There is no sign that any funds from the extended bailout loan will be released until that happens. European Commission Vice President Valdis Dombrovskis said that the mood between the Greek government and negotiators had been tense:"Talks are very complicated. Time is running out. Greece should come up with an ambitious reform list in line with its bailout program and also start to implement it."The Euro Working Group of deputy finance ministers gave the Greek government a deadline of six working days to present a revised economic reform plan. The next meeting of the eurozone finance minister is set for April 24. Dombrovskis claimed that the finance ministers had done their best to be flexible but Greece had to do more.
Whether the Greek negotiators are using the threat of default as a negotiating tactic or not, the depletion of Greek government coffers and the need for more cash is a reality as payment of pensions and salaries become due as well as loan payments. Investors are unsure whether there will be a forced exit of Greece from the eurozone or even perhaps an election called again if no agreement is reached.
Syriza has not only passed legislation on poverty and home foreclosures condemned by its creditors but also has steadfastly refused to address what the Financial Times calls "politically sensitive structural economic reforms":
These included an overhaul of the pension system, including cuts in the payments received by Greek pensioners, and measures to permit mass dismissals by private sector employers.
In spite of promising to meet Greece's international debt obligations, the finance minister Yanis Varoufakis said that the government's top priority is its domestic commitments and this included an obligation to continue paying pensions. Surely, it should be evident by now that Greece cannot do what its creditors demand while also meeting its "domestic commitments."
Nevertheless a Greek government spokesperson denies that it is preparing a default if it cannot reach an agreement with creditors on bailout terms or that it might call an early election afterwards. The spokesperson said that negotiations were proceeding swiftly towards a solution. A solution is needed since the Greek government needs 2.4 billion euros to pay salaries and pensions this month. On the first of May it needs to pay the IMF 203 million euros and another 770 million euros on May 12. Greek prime minister Alexis Tsipras maintains that Greece will simply be unable to service its debt without funds from the European Union.

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