Greece plans to raid coffers as creditors dash hopes of resolving cash crisis

By Mehreen Khan 15 April 2015

Athens could force pension funds to transfer assets to the government as desperate Greeks tout possibility of delaying IMF repayments

Photo: © 2015 Bloomberg Finance LP

Cash-strapped Greece is planning to resort to drastic measures to stay afloat, as the country's bail-out drama moves to Washington today.

Finance minister Yanis Varoufakis is due to drum up support for his debt-stricken nation when he meets with President Obama at the White House later today.

The meeting with the world's most powerful leader comes as a desperate Athens could raid the country's pensions funds in order to continue paying out its social security bill.

Greece's deputy finance minister Dimitris Mardas hinted that state-owned enterprises may have to transfer their cash balances to the Bank of Greece if the state was to avoid going bankrupt.

The government has long protested it will run out of funds to continue paying out a €1.7bn monthly wage and pension bill if a release of cash is not arranged in the next few days.

With their coffers running dry, Greek officials reportedly made an informal request to delay loan repayments to the International Monetary Fund, but were rebuffed, according to reports in the Financial Times,

However, the Fund's managing director Christine Lagarde said a moratorium on repayments was "not a course of action that would be fit or recommended".

"We have never had an advanced economy asking for payment delays," Ms Lagarde said today, adding that any period of clemency would constitute additional financial aid to a debtor economy.

"This would mean additional contributions by the international community and some of these countries are in a dearer situation than those seeking the delays," said Ms Lagarde, who will meet with Mr Varoufakis today.

"We will do everything we can so lending to the Fund remains the safest lending route any debtor can adopt."

Greece came to the brink of falling into an arrears process with its senior creditor last month, but avoided the ignominy of becoming the first developed country to ever fall into an IMF default.

The debtor nation, which has received no emergency cash since August 2014, faces a €2.5bn IMF loan bill over May and June.

Hinting at the gulf between Greece and its creditors, Greek Prime Minister Alexis Tsipras said "political disagreements" were continuing to block a bail-out extension.

Mr Tsipras said there were four areas of disagreement over its reform programme. These were " labour relations, the social security system, the VAT increase and the rationale regarding the development of state property."

However, the Leftist premier added he was confident Europe would not "choose the path of an unethical and brutal financial blackmail" and ensure Greece remained in the monetary union.

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Uncertainty around Athens future in the Eurozone saw Standard & Poor's downgrade the sovereign to CCC+ from B- with a "negative outlook". S&P warned that "without deep economic reform or further relief, we expect Greece's debt and other financial commitments will be unsustainable."

S&P now calculates the economy has already contracted by 1pc in the last six months, making ambitious surplus targets a near impossibility. The agency expects GDP to shrink by 1.5pc in 2015, a severe reversal from the 1pc growth it predicted only a month ago.

Greece's three-year bonds have spiked to their highest level since 2012 on the back of the downgrade.

The news comes as great and the good of the world's finance ministries are convening ahead of the IMF's Spring meeting in the US capital.

Adding to its financial burden, Greece's public debt has also hit an eye-watering 177pc of GDP in 2014 or €317bn, according to the Hellenic Statistical Authority.

The debt pile has swollen from 154pc of economic output in 2012, as the economy has undergone severe growth-retarding austerity in order to remain eligible for its €240bn international bail-out.

Slovakia's finance minister Peter Kazimir warned the debt-stricken economy was now getting "closer to the abyss".

Speaking ahead of a meeting of finance chiefs on April 24, Mr Kazimir said he was "sceptical" of a deal being reached by the end of the month.

A spokesman for the German finance ministry also dashed hopes alleviating the pressure on the stricken sovereign, saying there would be no smaller injection of bail-out money this month.

Friederike von Tiesenhausen repeated the full €7.2bn would only be released when creditors deemed Greece had sufficiently met its reform criteria.

His comments echoed the sentiment of Berlin's finance minister Wolfgang Schaeuble, who dismissed the dangers of market contagion should Greece be the first country to break the sanctity of the monetary union.

"If you look at Greece it's not a major part of the economy of the Eurozone as a whole," Mr Schaeuble said.

"Most participants of financial markets are telling us that markets have already priced in whatever will happen. You can't see any contagion."

The controversial finance minister, who has been the subject of an official complaint from Athens over his conduct, added Greece needed to carry out radical reforms to stop becoming "a bottomless pit".

Mr Schaeuble said there will be no resolution to the Greek crisis at a much-vaunted finance ministers meeting later this month

Meanwhile, Greece's struggling banks are being kept alive through emergency funds (ELA) from the European Central Bank. The ECB has been forced to hike the limits on this cash on a weekly basis as capital has fled the country. A further €800m was drip-fed to banks on Tuesday.

The provision of the vital life support has seen Euro system funding for Greece top €107bn.

Mario Draghi, speaking at his monthly press conference on Wednesday, said ELA would continue as long as Greece's banks remained solvent.

Despite the stalemate, the IMF forecasts the economy will grow by an ambitious 2.5pc in 2015, followed by 3.7pc in 2016.

Greece plans to raid coffers as creditors dash hopes of resolving cash crisis - Telegraph