Greece threatens to miss payment deadline on IMF loan

Conflicting narratives are coming from the Greek government. There are reports that the government is drawing up plans to nationalize the banking system and introduce the drachma as a parallel currency to the euro.

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According to an article in the Telegraph, a senior Greek official said:'We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer...We may have to go into a silent arrears process with the IMF. This will cause a furore in the markets and means that the clock will start to tick much faster,”The article claims that sources close to the Syriza party insist that when it comes to keeping public services running and paying pensions or missing a payment to the International Monetary Fund(IMF) on April 9, the government will choose to miss the payment.

The article claims that Greece does not have funds to cover payments of salaries and pensions on April 14th and also the IMF on April 9th. There are conflicting reports however. On Wednesday, Interior Minister Nikos Voutsis claimed that the country would be required to choose between paying the IMF and paying pensions and salaries, and that the government would choose the latter. This position was used in an appeal for further funds in a teleconference with euro zone deputy finance ministers, also on Wednesday. Later, a government spokesperson denied that Greece would miss the IMF payment deadline.

The threat of default and plans to return to the drachma and nationalise the banks may be a bluff designed to force creditors to release cash quickly to avoid these drastic measures. Apparently, the view in Athens is that EU creditors do not sufficiently appreciate the significance of the changed political landscape in Athens. To get a deal the EU creditors must make genuine concessions. So far most concessions are coming from Greece that has given up any debt write off, halts to privatization, and any significant easing of the austerity conditions imposed by the original bailout deal. So far the reforms presented by the Greek government have been rejected as inadequate. Even if Greece does carry through with its threat to default on the IMF loan this is unlikely to cause EU creditors to change course.

Syriza seems incapable of setting out a unified position in public. This has happened on the issue of privatization where it has promised as part of reforms to privatize the port of Piraeus while government officials at the same time claim that the government will not give up its 67 percent stake in the port project. Now it is happening with the default threat. While Voutsis announces the threat of default, government spokesperson, Gabriel Sakellandis, claimed to Reuters that this announcement did not represent the stance of the government: "There is no chance that Greece will not meet its obligations to the IMF on April 9."

Circumstances may be developing for an accidental Grexit or Greek exit from the euro zone. The National Bank of Greece is already facing difficulties with its stock hitting new lows. It has required emergency liquidity assistance. There has been an outflow of funds that add up to $30 billion since last October. One Greek source said: “We will shut down the banks and nationalise them, and then issue IOUs if we have to, and we all know what this means. What we will not do is become a protectorate of the EU." Another official complained:“They want us to impose capital controls and cause a credit crunch, until the government becomes so unpopular that it falls. They want make an example of us, and demonstrate that no government in the euro zone has a right to have mind of its own. They don’t believe that we will walk away, or that the Greek people will back us, and they are wrong on both counts.”The Greek government should have seen this coming and made plans and started to implement them long ago. Instead, it insisted that it would do anything to remain in the euro zone.

The Greek government apparently suggested that a partial payment of the bailout funds could be issued but this was rejected by the Eurogroup. While indications are that there is no agreement yet in sight, Economy Minister, George Stathakis,said on TV that an agreement will be reached next week. There are a few days between the IMF payment and the payroll payment. Perhaps Greece will make the IMF payment and then expect some move by creditors to help cover the pension and government payroll payment.