By Mehreen Khan, and Szu Ping Chan 09 April 2015
Athens steps back from threats to renege on the International Monetary Fund as hopes of bail-out deal rise
Greece will need to brush up its reforms list before finance ministers meet on April 24 Photo: Copyright (c) 2013 Rex Features.
The European Central Bank bolstered its emergency funding for Greece’s stricken banks, as Athens made good on its promise to pay back the International Monetary Fund, averting an unprecedented default.
Having threatened to deliberately miss a €448m loan repayment to the Fund without a guarantee of fresh bail-out cash, Athens sent its latest payment on Thursday morning, according to finance ministry officials.
Christine Lagarde, the managing director of the International Monetary Fund, confirmed Greece had made its loan repayment on time. “Yes – I’ve got my money back,” she told an audience in Washington.
The cash-strapped government has warned its paymasters it would run out of funds to make its loan obligations and continue to pay out a €1.7bn monthly social security bill without a release of bail-out cash.
Earlier this week, finance Minister Yanis Varoufakis paid a visit to Ms Lagarde seeking reassurances that Athens would be given enough “flexibility” to ensure it could still meet its public sector wages and pensions obligations.
Greece averted falling into an arrears process but will still need to repay a further €9.2bn to the IMF this year.
The move came as the ECB hiked its cap on emergency funding (ELA) for Greek banks by €1.2bn. This is the largest reported single increase in ELA funding since the central bank removed its ordinary lending operations to the country in February.
ELA, which is reviewed on a weekly basis by the ECB, has been drip-fed to Greek banks and now stands at more than €73bn.
A two-month stalemate in Greece’s bail-out negotiations has seen capital flee the country’s banks, which have repeatedly hit the limit on the emergency cash. The ECB’s latest move will help cover the €1.12bn that was withdrawn from banks from March 30 to April 8.
Mr Varoufakis hit out at the central bank's disciplinarian stance, claiming the ECB had become a "highly politicized central bank".
“The Eurozone is teaching us about the paradox of central bank independence,” Mr Varoufakis said in Paris.
“The attempt to ring-fence Frankfurt from politics has produced a highly politicized central bank. I do not blame the Governing Council. In their attempt to do some efficient fire fighting, they have become politicized."
Speaking ahead of the IMF’s bi-annual meeting in Washington on Thursday, Ms Lagarde warned more had to be done to secure Greece's future in the Eurozone.
"What is now badly needed is not to talk, but to actually get on with the work," said Ms Lagarde.
"The Greek authorities together with representatives of the three institutions have to really sit down and focus on the objective of what is better for Greece - which is restoring the economy, stabilising it and by so doing re-establishing its sovereignty.
"It’s a difficult path but one that has to be walked."
She also warned that many Eurozone member states had failed to implement reforms, as she urged countries to take advantage of the triple "shot in the arm" of low oil prices, low borrowing costs and the impact of the ECB's €1.1 trillion quantitative easing programme, which had pushed borrowing costs down further and weakened the euro.
"With these three factors, if they don’t start now, it’s to despair...Some of them have started. I hope they will continue."
Ms Lagarde also warned that a "new mediocre” of low growth could become permanent if countries failed to implement reforms.