Wednesday

23rd Sep 2020

Eurogroup starts with talk of Greek default

  • Greek Finance minister Yanis Varoufakis and IMF chief Christine Lagarde at the Eurogroup meeting in Luxembourg. Lagarde said their will be "no period of grace" if Greece doesn't pay the IMF on time. (Photo: Council of the EU)

Christine Lagarde, the director of the International Monetary Fund (IMF), warned Thursday (18 June) that she would consider Greece to be default as early as 1 July if it fails to repay the IMF on 30 June.

Under IMF rules, she has 30 days to inform the board of any failure by the Greek government to repay the €1.6 billion it owes. 

But Lagarde said there would be "no period of grace".

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"[Greece] will be in default, it will be in arrears vis-a-vis the IMF on 1 July. But I hope it is not the case, I really do," she told reporters in Luxembourg.

A Greek default to the IMF could also lead the European Stability Mechanism (ESM), the EU emergency fund, to reclaim the money it is owed by Greece, warned ESM chief Klaus Regling.

The ESM, through its predecessor fund, the EFSF, lent €130.9 million to Greece.

A clause in the loan contact with Greece allows the ESM to be "immediately" repaid "with accrued interest".

Such a claim is unlikely, as Greece would not be in a position to pay.


A more likely move would be for the ESM to reserve its rights, meaning taking note of the default and maintaining the possibility of reclaiming the money lent to the country.

Lagarde and Regling made the comments just before a meeting of eurozone finance ministers in Luxembourg where hopes of progress between Greece and its lenders were feeble.

Diplomatic sources told EUobserver no new document was on the Eurogroup table when ministers started their meeting on Thursday (18 June) afternoon.

Greek finance minister Yanis Varoufakis said he would present "ideas … to replace costly discord with effective consensus".

But the president of the Eurogroup, Jeroen Dijsselbloem, told reporters he did "not have a lot of hope" of progress.

"[Varoufakis] likes to present things he already said in a new way," a Greek source told EUobserver, suggesting he did not come to the meeting with specific proposals.

An inconclusive outcome on Thursday evening would increase the risk of a default as it would make it more difficult to reach an agreement in time for 30 June, when the current bailout programme ends and Greece is due to repay the IMF.

A lack of progress would also increase the risk of a bank run.

 According to Greek media, €1 billion was withdrawn form Greek banks on Thursday, in addition to €1 billion taken out between Monday and Wednesday.

"The situation is closely monitored, with the Bank of Greece asking Greek banks once or twice a day about it," an EU source told EUobserver.

However, imposing capital controls would be difficult as it would require a vote by the Greek parliament.

'Money time' for Greece

Fears the Greek banking system may collapse remain high as cash outflows continue ahead of emergency eurozone meetings on Monday.

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