Tuesday, May 26, 2015

Greece begs for leniency as investors warn 'time for complacency' on collapse is over

By Peter Spence, Economics Correspondent 25 May 2015

Investors fear the Greek government won't make IMF payments this June as negotiators make no progress

Politicians in Athens are voting against a backdrop of civil unrest

Greece may be unable to pay the IMF this June Photo: EPA

The Greek government has pleaded with its creditors for more time, as increasingly tense negotiations have frightened euro area investors.

Greece has until Friday to pay the salaries it owes to public sector staff, a week after which it is expected to scrape together the money to repay the International Monetary Fund (IMF) close to €300m (£212m).

The single currency has weakened against most other major currencies, reflecting fears that negotiators will be unable to agree a deal and that Greece will not pay. Only those with nerves of steel can confess to being bullish on the euro at this stage.

The euro slid by 0.2pc against the dollar, as the Swiss franc - perceived as a safe haven asset - climbed against every one of its major trading partners according to Bloomberg data, suggesting that traders were looking for shelter.

If progress can not be made, it is feared that Greece may be forced out of the Eurozone entirely, leading to a messy default and turmoil throughout the wider currency union. On Sunday, Yanis Varoufakis, the Greek finance chief, warned that a reversion to the drachma would be “catastrophic”.

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Michala Marcussen, global head of economics at Societe Generale, said that there is “not time for complacency” as negotiators have made it clear that any deal between Greece and its creditors must include the IMF.

This “is seen as setting a high hurdle”, she added. Although Societe Generale believes there is a 60pc chance of a stable compromise being forged, Ms Marcussen stressed that “this is no time for complacency on the Greek situation”.

The IMF is considered senior to the European Central Bank (ECB), and as such if Greece failed to pay up, it would likely also fail deliver payments to its other creditors. It is due to transfer €3.5bn to the ECB on July 20.


Ms Marcussen said: “The negotiating positions appear to be toughening with Greece warning of payment failure.” The Greek minister of the interior warned on Sunday that the embattled government would be unable to find the cash for the €1.6bn (£1.1bn) payments it is due to make in June.

Mr Varoufakis said that if Greece were to live the euro area “It would be a disaster for everyone involved”. “It would be a disaster primarily for the Greek social economy, but it would also be the beginning of the end for the common currency project in Europe,” the minister said.

He continued: “Whatever some analysts are saying about firewalls, these firewalls won’t last long once you put and infuse into people’s minds, into investors’ minds, that the Eurozone is not indivisible.”

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The finance minister’s comments came as Wolfgang Schaeuble, his German counterpart, said that making the payments was “the condition for completing the current program”. Speaking in an interview with Deutschlandfunk radio, Mr Schaeuble said that “the problems are rooted in Greece, and now Greece does have to fulfil its commitments”.

Ms Marcussen suggested that if the situation does get “really ugly”, this would likely become apparent in July, following a one-month grace period should Greece fail to cough up the cash. For now, fears that negotiations will not make progress are most critical, as these could trigger bank runs, and force Cyprus-style capital controls.

Greece begs for leniency as investors warn 'time for complacency' on collapse is over - Telegraph