Greece to miss IMF payments amid fears of 'catastrophic' Eurozone rupture

By Peter Spence, Economics Correspondent 24 May 2015

A Greek reversion to the Drachma would be an irreversible "disaster" for the entire euro project, Yanis Varoufakis warns

Greece's long-term future in the Eurozone still hangs in the balance Photo: AFP

Greece will be unable to find the €1.6bn (£1.1bn) sum it is due to hand the International Monetary Fund (IMF) next month, one of the country’s ministers has admitted.

Nikos Voutsis, the Greek minister of the interior, said that “this money will not be given and is not there to be given”, speaking on Mega TV. The Greek state is due to hand over the money in four instalments in June, as part of its obligations for its 2011 bail-out.

Mr Voutsis’ comments came as Yanis Varoufakis, the Greek finance minister, told The Andrew Marr Show that if progress was not made, it would be the beginning of the end for the euro project.

The finance minister said that the Syriza-led Greek government has now “made enormous strides at reaching a deal”, and that it is now up to the ECB, IMF and EU “to do their bit” and “meet us one-quarter of the way”.

• How the ECB became the real villain in Greece

• AEP: defiant Greeks force Europe to the negotiating table

One possible alternative if talks do not progress is that Greece would leave the common currency and return to the drachma. This would be “catastrophic”, Mr Varoufakis warned, and not just for Greece itself.

“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,” he said.

“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,” he added.

Yanis Varoufakis, the Greek finance minister (Photo: Reuters/Alkis Konstantinidis)

“It will only be a certain amount of time before the whole thing begins to unravel.”

Mr Varoufakis' and Mr Voutsis' words followed a declaration from Alexis Tsipras, the Greek prime minister, that bargaining with Greece's creditors would soon come to a close. On Saturday he said: "We are on the final stretch of a painful and tough period shaped by the government's negotiations with the institutions."

"Rest assured that in this negotiation we will not accept humiliating terms," Mr Tsipras told Syriza's central committee. "The overwhelming majority of Greek people want a solution and not just an agreement ... it supports the government in this tough negotiation," he added.

For Greece itself, using the common currency is now like using a “foreign currency”, and any exit from the Eurozone would be “a disaster”, Mr Varoufakis said.

He continued: “Trying to get out of it is tantamount to announcing a devaluation 10 months in advanced.” Economists warn that if Greece were to leave the euro area, it could trigger huge levels of capital flight.

In turn, Greece would almost certainly have to resort to capital controls in order to stem the tide of money out of the domestic economy.

• How the Eurozone could tear apart

• Greek economy is bleeding 600 jobs a day

Ratings agency Moody's has warned that there is now a "high likelihood" of such controls, which might be necessary to keep the Greek financial system alive. An estimated €30bn has been withdrawn from the country's banks since snap elections were called in December 2014.

Mr Varoufakis said that at some point the Greek government would have to make a choice between paying salaries and paying international creditors.

The decision is one “that no minister of finance should ever have to make”, Mr Varoufakis said, adding that “and of course the choice that makes under those circumstances is clear cut, isn’t it”, indicating that creditors would be left empty handed.

The Greek state had done “remarkably well” at making payments so far, given its lack of access to the money markets, Mr Varoufakis said.

Wolfgang Schaeuble, the German finance minister (Photo: Jasper Juinen/Bloomberg)

The finance minister said that it would be unnecessary to for Greece to hold a referendum to refresh its mandate, as suggested by Wolfgang Schaeuble, the German finance minister.

Mr Schaeuble has said that a Greek plebiscite on continued membership of the euro would be "helpful" for both the country and its creditors. Mr Varoufakis, however, stressed that "the Greek people completely support us".

He said: "We have a fresh mandate to end this austerity trap, to end this debt-deflationary spiral, and to say to these institutions that it is not in their interests as our creditors to say that the cow that produces the milk should be into into submission."

The beatings should not continue "to the extent that the milk will not be enough for them [Greece's creditors] to get their money back", he added.

Greece to miss IMF payments amid fears of 'catastrophic' Eurozone rupture - Telegraph