World Economy

Greece Gridlock

Greece Gridlock Greece Gridlock

Greek Prime Minister Alexis Tsipras told the leaders of France and Germany on Friday that his government does not understand the insistence of the country’s creditors on harsh budget austerity measures, a Greek official said.

Tsipras met with German Chancellor Angela Merkel and French President Francois Hollande on the sidelines of a European summit in Brussels, as talks on unfreezing the country’s bailout loans remain at an impasse. Greece faces default as soon as Tuesday, when it has a debt repayment, AP reported.

Negotiations have stumbled on what economic reforms Greece must make in return for the remaining €7.2 billion ($8.06 billion) in its international bailout program.

Should it default on its debt, Greece could eventually have to leave Europe’s joint currency, the euro. That would likely plunge the country back into a deep and long recession and shake European and global markets.

European leaders have demanded finance ministers from eurozone countries reach an agreement Saturday on the reforms Greece must make to unfreeze its bailout loans.

In his meeting with the French and German leaders, Tsipras “stressed that the Greek side doesn’t understand the insistence of the institutions on such harsh measures,” a Greek government official said.

  Meeting Decisive

Angela Merkel has said that Saturday’s meeting of eurozone finance ministers would be “decisive” in reaching a Greece bailout deal. The deadline now lies just four days away.

Following the first day of the ongoing EU summit in Brussels, Merkel said early on Friday that eurozone finance ministers would “have to keep working” in the coming days “because time is pressing,” DW reported.

“All the leaders supported the idea that everything must be done to find a solution on Saturday.”

Greece needs loans to pay 1.5 billion euros ($1.7 billion) to the IMF by June 30. Failing to do so would result in a default on Greece’s loan, which analysts fear could force the country to exit the eurozone and possibly even the EU.

  Dire Consequences

All sides are working hard to prevent Greece from defaulting on its debt obligations to the IMF—and with good reason: Such an outcome would have dire consequences not only for Greece and Europe but also for the international monetary system.

The IMF’s “preferred creditor status” underpins its ability to lend to countries facing great difficulties (especially when all other creditors are either frozen or looking to get out). Yet that capacity to act as lender of last resort is now under unprecedented threat.

Preferred creditor status, though it isn’t a formal legal concept, has translated into a general acceptance that the IMF gets paid before almost any other lender.

And should debtors fail to meet payments, they can expect significant pressure from many of the fund’s other 187 member countries.

  Greece’s Fiscal Odyssey

The IMF has been able to act as the world’s firefighter, willing to walk into a burning building when all others run the other way. Time and again, its involvement has proved critical in stabilizing national financial crises and limiting the effects for other countries.

Not long ago, it would have been improbable for the IMF to engage in large-scale lending to advanced European economies (the last time it did so before the euro crisis was in the 1970s with the UK). And it would have been unthinkable for the fund to worry about not getting paid back by a European borrower.

Yet both are happening in the case of Greece. Moreover, compounding the unprecedented nature of the Greek situation, other creditors (such as the European Central Bank and other European institutions) are in a position to help provide Greece with the money it needs to repay the IMF.