20 June 2013

FT: IMF to suspend aid payments to Greece unless bailout hole plugged

The International Monetary Fund is preparing to suspend aid payments to Greece by the end of next month unless eurozone leaders plug a €3-€4 billion shortfall that has opened up in Greece's €172 billion rescue programme.

The gap emerged after eurozone central banks refused to roll over Greek bonds they hold, and comes amid signs that even the scaled-back privatisation plan Athens agreed to last year is falling behind schedule.

Officials involved in the Greek talks emphasised that, unlike previous slippages in the bailout, the fault did not lie with Athens but rather in other eurozone capitals. They also blamed privatisation delays on “outside pressures”.

Under IMF rules, governments must have at least 12 months of financing in place to receive IMF disbursements under any bailout programme. This latest shortfall means Greece’s financing needs are now only covered up to the end of July 2014. Jeroen Dijsselbloem, the Dutch finance minister who chairs the committee of eurozone finance ministers, said that the group had implored Yannis Stournaras, their Greek counterpart, to complete talks with the “troika” of international lenders by next month to avoid a crisis. “We need to finish the review at the beginning of July”, said Mr Dijsselbloem, who added that negotiators would return to Athens at the start of next month “at the latest".

Even if the IMF were able to distribute aid in July, it would only delay the day of reckoning until the next disbursement later in the year. However, that is likely to fall after Germany’s parliamentary elections on September 22, avoiding a need for the Bundestag to address the issue during the campaign. The shortfall would still force eurozone finance ministers to discuss “alternate sources” of funding, said an official, including the possibility of a fresh bailout programme by the end of the year. An alternative short-term fix would be for Athens to delay repayment of government arrears, but this could hamper economic recovery in a country that has seen five years of deep recession. Greece could also issue more short-term debt, but this is something lenders have sought to curtail.

Full article (FT subscription required)

© Financial Times