By Mehreen Khan 12 May 2015
Athens is forced to tap reserves at an IMF escrow account after reports suggest the Fund will not participate in a fresh Greek bail-out
Fund has raised concern that Greece needs a further debt write-off
Greece avoided an unprecedented default to the International Monetary Fund on Tuesday after raiding its emergency cash account at the Fund, in a major sign the country is edging ever closer to stiffing its senior creditor.
Athens tapped €650m from an escrow account held by the Bank of Greece at the IMF, scraping together a further €100m in cash reserves to avoid going into arrears.
The news came after reports in Spanish paper El Mundo said the IMF was ready to pull the plug on the debt-stricken country.
Fund officials reportedly told European finance ministers they had grave concerns about Athens willingness to slash spending, raise tax revenues, and implement a raft of structural reforms, ruling themselves out of a fresh rescue which could be worth €30bn-€50bn.
The move to effectively shift funds from different accounts at the IMF signals Greece has all but run out of cash to meet its international and domestic obligations. According to estimates, Greece only has a paltry €90m in spare cash reserves, making it unable to fulfil its monthly wage and pensions bill of €1.7bn for May.
Alexis Tsipras held a four-hour crisis cabinet meeting
Figures from April showed the debt stalemate continued to spook ordinary Greeks, who pulled more than €7bn out of the financial system last month, sending bank deposits to fresh 10-year lows.
With capital still fleeing the country, the European Central Bank was forced to hike its emergency provisions for lenders a day earlier than usual. The ceiling on emergency liquidity assistance was raised by a further €1.1bn on Tuesday, taking total liquidity support to more than €80bn.
The ECB also decided to maintain the current level of haircut it requires from Greek banks posting collateral for the emergency cash. There were fears the central bank would tighten its collateral rules, further squeezing Greece, as the country struggles to meet conditions for its bail-out extension.
The IMF has been at loggerheads with its creditor partners over debt relief for the stricken government. The Fund is reported to be pushing for a debt write-off for Athens, as its liabilities have topped 180pc of GDP.
Greece owes the IMF a total of €9.7bn this year and will need to repay a further €2bn over the course of June and July. But officials from the Fund said the Bank of Greece was under no obligation to replenish its escrow account and could use the cash as it wishes.
Christine Lagarde has maintained the IMF will not countenance a default from any debtor nation. The Fund holds "senior creditor" status among Greece's lenders, and is due to provide €3.5bn of the remaining €7.2bn in bail-out cash due to Greece as part of the remainder of its bail-out.
Seen as the "lender of last resort" for even the most war-torn and financially stricken nations, the fact that IMF could withdraw its participation in a bail-out indicates the depths of Greece's woes. Should the IMF pull the plug, this would shift the entire burden of a fresh Greek programme onto Europe.
Speaking in Brussels on Monday, president of the euro group Jeroen Dijsselbloem said there would be no discussions over another programme for Greece until an agreement on its current deal is reached.
The latest meeting of finance ministers gave way to little substantive agreement on unlocking vital bail-out funds for Athens, but was conducted in a more "constructive" environment, said Eurozone economics chief Pierre Moscovici.
George Oborne met with his Greek counterpart in Brussels (Reuters)
Greece's finance minister Yanis Varoufakis warned his country now faced an "urgent" liquidity situation.
The government has resorted to raiding the coffers of its local government bodies and confirmed it had raised a further €600m from municipal transfers on Tuesday morning. The raid is expected to generate nearly €2bn in total, but is being resisted by local bodies who see the emergency decree as "unconstitutional".
Athens has already fallen into arrears with its suppliers, while the country’s hospitals, universities and pension funds are struggling to make their obligations.
Greece’s largest pension fund was forced to take out a short-term loan worth €360m in order to continue paying its members in June.
European finance ministers convened in Brussels on Tuesday to further discuss the Greek question but failed to make any substantive progress towards sealing a bail-out extension.
“Each week becomes more previous than those that have passed, because the weeks remaining are fewer and fewer,” said France’s finance minister Michel Sapin.
The Greek cabinet met for the second time in three days yesterday to discuss progress towards a deal. On Sunday, the Syriza regime held a “war conclave” promising to stick by its “red lines” over labour market reforms and raising pensions provision.
One minister at the meeting said pension reform and VAT rules remained stumbling blocks between the government and its creditors, but Athens was getting closer to bridging gaps on restoring collective bargaining rights for workers and adopting re-hiring rules.