It has been released that prior to Greece’s May 13 International Monetary Fund (IMF) payment, Alexis Tsipras wrote a letter warning of the possibility of default. The recipient of the letter was IMF prime minister Christine Lagarde who shared the contents of the letter in a closed-door meeting Thursday. The message Tsipras was sending was that unless Greece receives emergency funds, it may default on the €300 billion payment due next month. What may compound this problem, officials who were briefed on the meeting about the letter have communicated, is that Poul Thomsen, IMF’s head of the European sector, has said that negotiations with Greece have recently been so unproductive that they are hesitant to release its €3.6 billion of aid to the country.
The letter Tsipras sent to the IMF warned of defaulting on a €300 payment due June 5. Over the past four months Greece has managed to make its payments by drawing from profits gained from hospitals, schools, local governments, and they eventually had to draw on an emergency account with the IMF. This last resource essentially consisted of borrowing from the IMF to pay the IMF. Tsipras is appealing for funds as his government’s two-year bonds interest raised three percentage points Monday and Athen’s Stock Exchange fell almost two percent.
Tsipras has reason to be concerned. Greece’s debt is very large and increasing. Its total debt is €300 billion which amounts to 180 percent of the nation’s GDP. This is in comparison to the 82 percent of GDP that the UK owes. Greece will owe €9.2 billion to the IMF in 2015 and will pay out between €1.5 and €1.7 billion in government salaries and pensions in 2015. With this mounting debt and their increasing expenses, Greece is still receiving mixed messages from potential investors and lenders.
The IMF is obviously hesitant in releasing aid until there is concrete economic reform exhibited by Greece. However, following a tour of Europe by Tsipras and Yanis Varoufakis, finance minister for Greece, the European Central Bank (ECB), who is one of Greece’s three biggest financers and who has recently been receiving much negative attention for potential hegemonic policy, stopped their “regular” funding of Greek banks back in February. Varoufakis, has commented that “[i]n their attempt to respect their duties, the ECB’s policymakers have made themselves political.”
Varoufakis, in his usual no-frills tone of economic realism acknowledges Greece’s position stating, “We are too small, too inexperienced as a government, too indebted as a nation to impose a will.” However, others have expressed confidence that a deal will be made by the end of May that will help Greece pull through. One such advocate is found in the conservative economic minister of Spain, Luis de Guindos, who believes that an agreement will be made “in the coming days.”
Alexis Tsipras, in his letter to the IMF, warned that Greece has used up its resources over the past four months proving its commitment to repaying its debt, but it is time for aid. The IMF’s stance seems to be that it needs to be shown by Tsipras that real economic reform is happening in Greece prior to releasing funds or making a quick deal to relieve the nation from its financial burden. By mid June it will be seen whether Greece will go into default or whether they can continue to make payments to the IMF.
By Joel Wickwire
ABC – Greece Says It Needs Bailout Deal by End of May
Financial Times – Tsipras letter reveals precarious of Greece’s finances
Huffington Post – Greece Bailout Deal Needed By End Of May, Official Says
The Telegram – How the European Central Bank became the real villain of Greece’s debt drama
Image provided by Daniele Vico‘s Flickr Page – Creative Commons License
Image provided by Peter BARABAS‘s Flickr Page – Creative Commons License