By Mehreen Khan 17 May 2015
Prime minister wrote of imminent default days before tapping emergency IMF reserves, as Germany says world will lose trust in the euro after a Grexit
The brinkmanship at the heart of Greece’s 11th hour escape from default has been laid bare, as it was revealed Alexis Tsipras told creditors the country would not be able to fulfil its obligations to the International Monetary Fund.
Greece narrowly avoided falling into arrears with the IMF after tapping its own emergency reserve account at the Fund to make a €750m payment back to it last week.
But it has emerged that the prime minister was seemingly unaware of the cash reserves just days before the payment was due.
According to reports in Greek newspaper Kathimerini, Mr Tsipras wrote to IMF chief Christine Lagarde, European Central Bank president Mario Draghi and the European Commission's Jean Claude-Juncker, telling them his government would default without a release of emergency funds days before payment was due on May 12.
The Greek premier also appealed to the ECB to allow his cash-starved government to issue short-term government debt and requested the return of €1.9bn in profits held by the ECB from holding Greek bonds.
Following Syriza's election, the ECB has banned Greek banks from increasing their holdings of T-bills, placing a further squeeze on the government which is scrambling to find the cash to make its public sector obligations every two weeks.
Mr Draghi and his governing council failed to lift the prohibition at a meeting last week, but did provide an additional €1.1bn in emergency liquidity to the country's banks.
Greek negotiators are now hoping to agree the terms of a deal by the end of this week, as the country faces a punishing schedule of repayments to the IMF in June.
Athens must find €1.5bn in the first three weeks of next month to avoid becoming the only debtor nation in the developed world to delay payment to its senior creditor.
The government will not, however, be able to draw on it "special drawing rights" (SDR) account at the IMF again, having cleared out its remaining €650m last week.
Recourse to the SDR reserves, which effectively shifts cash from different accounts at the Fund, is not without precedent and has been used by other debtors to pay off their loans, according to IMF officials.
But the existence of the account, which is held by the Bank of Greece, has caused consternation in Greece.
Voices within the Leftist Syriza government have called for central bank governor Yannis Stournaras to resign, accusing him of hiding knowledge of the funds and pushing the country to the brink of default.
Syriza resolved make the payment to the IMF following an emergency "war cabinet" meeting last Sunday.
Mr Tsipras' appeals for bridging finance have fallen on deaf ears (Reuters)
Despite the government's coffers running empty, Mr Tsipras repeated he would stick by the electoral promises which have proven to be an intractable stumbling block for Greece's paymasters.
"I want to reassure the Greek people that there is no possibility or chance that the Greek government will back down on pension and labour issues," the Syriza leader said on Friday night.
An internal IMF memo confirmed there has been little progress on negotiations to release €7.2bn in bail-out funds.
Despite acknowledging that the spirit of talks had improved and Mr Tsipras was now “more directly involved in negotiations”, the memo made clear the IMF did not have access to vital information about Greece’s finances to judge its debt sustainability or to agree to new primary budget targets for this year.
The IMF added there was “no possibility for the Greek authorities to repay” more than €11bn in obligations due over June and August without a release of emergency cash.
Germany’s vice chancellor Sigmar Gabriel warned the world would “look differently” on Europe if Greece was allowed to exit the euro.
“No one would have trust anymore in Europe if in the first big crisis a currency member exits,” said Mr Gabriel.