Greece Defaults on IMF

Payment

Greece made last-minute overtures to its international creditors for financial aid on Tuesday, but it was not enough to save the country from becoming the first

developed economy to default on a loan with the International Monetary Fund.

The left-wing Greek government had asked European partners for a two-year aid package to cover its

financing needs. Later on Tuesday, Greece’s Finance Minister Yanis Varoufakis indicated on a call with European counterparts that Athens might scrap a

controversial July 5th referendum if a deal was reached, according to euro zone sources.

The flurry of diplomacy was an attempt to bring creditors back into talks after five months of

inconclusive negotiations brought Greece close to leaving the euro currency bloc.

It came as tens of thousands of people descended on Athens’ central Syntagma square over the past 24 hours in two different rallies – one to support the government and the other to push for Greece to

remain in the euro.Greece, as expected, was not able to repay 1.6 billion euros it owed to the International Monetary Fund, in what was the largest missed payment in the Fund’s

history.Late on Tuesday, the IMF said it would examine a

Greek request for a payment extension in due course.

Greece, as expected, was not able to repay 1.6 billion euros it owed to the International

Monetary Fund, in what was the largest missed payment in the Fund’s history.Late on Tuesday, the IMF said it would examine a Greek request

for a payment extension in due course.The latest Greek proposals came too late to prevent Greece’s existing aid package – with

locked-up funds it needs to pay wages, salaries and debt – from expiring.

Still, in a sign that European officials have not given up on finding a solution for Greece,

finance ministers said they would confer on Wednesday over Tsipras’ latest loan request, effectively coming back to the negotiating

table.Sources said the officials are expected to discuss on Wednesday Greek Prime Minister Alexis Tsipras’ request for the new two-year loan to pay debts that amount to nearly 30 billion euros. Tsipras is also seeking debt

restructuring, an issue on which lenders have so far been reluctant to compromise.

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A Greek official said that, as of late Tuesday, there were no changes in the planned

referendum.

DEFAULTGreece has received nearly 240 billion euros in two bailouts from the European Union and International Monetary Fund since 2010. The money has allowed the country to stay afloat butat a high cost to its population, which has swallowed many austerity measures such as cuts to pensions, wages and public services.With its missed payment to the IMF, Greece is on a path out of the euro with unforeseeable consequences for both the EU’s grand currency project and the global economy.“What would happen if Greece came out of the euro? There would be a negative message that euro membership is reversible,” said Spanish Prime Minister Mariano Rajoy, who a week ago declared that he did not fear contagion from Greece.“People may think that if one country can leave the euro, others could do so in the future.”IMF Managing Director Christine Lagarde will immediately report to the global lender’s board at close of business, Washington time, that Greece is “in arrears” – the official euphemism for default.

It is the first time in the history of the IMF that an advanced economy has defaulted on a loan from the world’s financial backstop, putting Athens,

which has seen its economy contract by more than 25 per cent since 2009, in the same bracket as

Zimbabwe, Sudan and Cuba.Already the imposition of capital controls to prevent the crippled banking system from collapsing have given Greeks a bitter foretaste of the economic

plunge that could follow exit from the euro.Withdrawal limits of 60 euros a day have been fixed

for cash machines and there have been long queues at petrol stations and in supermarkets as worried shoppers stocked up on essentials like

pasta and rice.There were no immediate signs of serious shortages but if the banks remain closed, cash flow problems which have already been reported by some firms,

could worsen.“So far there are no problems with suppliers, but if the banks are still closed next week there will be a

bit of a problem if they demand purely cash payments,” said Charisis Golas, owner of a small

meat and dairy shop in Athens.

DEFIANCEIn Athens, opposition leaders – echoing EU

officials – hammered home on Tuesday that the choice facing Greeks in the referendum is

whether to stay in the euro zone or return to the drachma, even though the EU has no legal way of

forcing a member state to give up the single currency.

Former Greek Prime Minister Antonis Samaras, leader of the main opposition party, said a “No” vote would push the country out of the single currency and wipe out wages and pensions.The euro fell against the dollar but European shares, which dropped sharply on Monday,

steadied on hopes of a deal. The Athens stock exchange is closed during a week-long shutdown

of the banking sector which began on Monday.Opinion polls show a majority of Greeks favour holding on to the euro, but the referendum is

shaping up to be a close call.

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