Greece eyes last central bank funds to avert IMF default

By Ambrose Evans-Pritchard Monday 02 March 2015

Syriza is not interested in emergency EMU funding if it means kowtowing to Troika demands

Greek pensioners try to break through a police barrier during protests in 2010. It is far from clear whether the government can legitimately tap pension funds without breaching other fiduciary obligations Photo: EPA

Greece is preparing to tap its final pension reserves at the country’s central bank if needed to avert a devastating default to the International Monetary Fund and keep the government going over the next two weeks.

The Greeks must pay the IMF €1.5bn in a series of deadlines this month, starting with €300m as soon as Friday. No developed country has ever defaulted to the IMF in the history of the Bretton Woods financial system. Such a move would shatter confidence and reduce Greece to a financial pariah in motley company with Zimbabwe.

George Stathakis, the economy minister, said the government still has hidden reserves to keep operations going for a few more weeks, brushing aside warnings that the state could run out of cash within 10 days. “These stories are exaggerated. We have various buffers, including €3bn or €4bn at the Bank of Greece," he told The Telegraph.

It is understood that the central bank deposits are mostly part of Greece’s social security and pension system. Analysts say it is far from clear whether the government can legitimately tap this money without breaching other fiduciary obligations. “We think the funds are already down to €1.8bn. If they draw on this, how are they going to meet their pension bills next month?” said one banker.

A senior Greek official opened the door last week to a possible “delay” in repayments to the IMF, perhaps for a month or two, setting off alarm bells among investors and bank depositors. It was taken as an admission that the country is now desperate as capital flight runs at €800m a day.

Yanis Varoufakis, the finance minister, sought to silence such talk over the weekend, telling Associated Press that a default to the IMF was out of the question, even if a halt in payments to the EU institutions remains a serious threat. “We are not going to be the first country not to meet our obligations to the IMF. We shall squeeze blood out of stone if we need to do this on our own, and we shall do it," he said.

The IMF deadlines are not rock hard. The Fund usually allows some grace period. There is a procedure for arrears if a country genuinely wishes to pay. "The clock starts ticking. It is another matter if they start saying they won't pay for six months," said one expert.

Syriza officials are aware that the IMF will be their last safeguard if Greece is ultimately blown out of the euro, although it is far from clear what would happen in such circumstances. Greece has already exhausted its IMF borrowing quota in earlier EU-IMF Troika bailouts, and patience is wearing thin among the Asian and Latin American representatives on the IMF board.

Greece has reached its €15bn limit for issuance of short-term T-bills imposed by the European Central Bank. The ECB could in theory raise the ceiling on Wednesday but the mood in the governing council is unlikely to be friendly after the latest remarks by Mr Varoufakis.

He warned that the debts owed to the European Central Bank are in a “different league” from IMF loans, and continued to insist that Greece will demand relief from EMU creditors. Payments of €6.7bn to the ECB are due in July and August. “We will fight it. If we had the money we would pay. They know we don't have it," he told Skai television.

Syriza has long argued that this debt is illegitimate, alleging that the ECB bought Greek bonds in 2010 in order to save the European banking system and prevent contagion at a time when the Eurozone did not have a financial firewall, not to help Greece.

Mr Varoufakis said the result was to head off a Greek default to private creditors that would have led to a large haircut for foreign banks if events had been allowed to run their normal course, reducing Greece’s debt burden to manageable levels. Instead, the EU authorities took a series of steps to avert this cathartic moment, ultimately foisting €245bn of loan packages onto the Greek taxpayer and pushing public debt to 182pc of GDP.

Relations between Greece’s Syriza government and the rest of the Eurozone remain extremely tense despite a fragile ceasefire agreed in Brussels to buy time and prevent a forced ejection of Greece from the euro, a development ruled as unthinkable by the leaders of Germany and France, and the European Commission.

Greek leader Alexis Tsipras lashed out at Spain and Portugal over the weekend, calling them “Axis powers” that are trying to suffocate Greece’s Left-wing revolution. The conservative leaders of the two countries appeared stunned by the vehemence of the attack, seeking to defuse the crisis by expressing warm support for the Greek people.

Jeroen Dijsselbloem, the Euro group's chief, said Greece could secure some new funding as early as this month if it delivers promptly on reforms imposed by the now defunct Troika, but the comments were dismissed in Athens as a mere repetition of demands by creditor powers that have yet to face up to the anti-austerity revolt sweeping southern Europe. Syriza has already said it will cancel privatisation of the Port of Piraeus and the major utilities, and “drastically review” the sale of Greek airports.

Mr Varoufakis said Greece did not want any further money if it meant having to buckle to Troika terms. “We won’t take the next tranche if the price is having to continue with the 'Memorandum'. That is not what the people voted for,” he said. It is a thinly-veiled warning that Greece will default on €300bn of combined liabilities to EMU entities and states if pushed too hard, regardless of what this implies for monetary union.

Whatever piece of paper they signed in Brussels 10 days ago, the two sides are still talking past each other.

Greece eyes last central bank funds to avert IMF default - Telegraph