Greece makes loan payment but still no deal

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Greece yesterday began payment of 750 million euros ($834 million) in debt interest owed to the International Monetary Fund (IMF) The move was made to show eurozone finance ministers meeting in Brussels that Greece would meet its debt payments.

The Greek government has had to borrow from pensions funds and local governments as well as dipping into its reserves at the IMF to meet the payment. After the Brussels meeting, the finance ministers said that there had been progress in the talks but there was more work needed to reach a final deal. No further cash was released. There are 7.2 billion euros left to be disbursed but the creditors are insisting that the conditions stipulated in the original agreement including reforms to the labor market and pensions must be met before any further funds are released.

The Eurogroup issued a statement that said in part: "We welcomed the progress that has been achieved so far ... At the same time, we acknowledged that more time and effort are needed to bridge the gaps on the remaining open issues." Jeroen Dijsselbloem, of the group said that more time was needed to reach a deal but that there were both time constraints and liquidity constraints but he hoped an agreement could be made before money ran out.

The Greek Finance Minister Yanis Varoufakis said that Greece had only a few weeks before it would face a liquidity crisis and default on payments. The IMF is said to be already working on a contingency plan to deal with a potential Greek default. Greece has not received any payouts from its bailout loan since last August.

The talks between Greece and its creditors have now been ongoing for more than three months with little progress reported until recently. Finance minister Varoufakis noted that there had been progress on privatization and tax reform. As Varoufakis notes, the progress had been mostly because of concessions by the Greek government including on issues that were supposed to be "red lines" not to be crossed. Nevertheless he said that the discussion including his own with Wolfgang Schaeuble, the hard line German finance minister had been the friendliest yet.

Somewhat surprisingly Schaeuble said that it might make sense for a referendum to be held on any deal that was reached so as to give the Greek government a mandate to go ahead with painful austerity demands. Previously the EU has been opposed to any such move as destabilizing markets. Schaeuble's position fits in with that of Syriza MP Costas Lapavitsas that any deal needs a clear mandate from the Greek people. As any deal is bound to break election pledges there could be rebellion within the party even if a referendum were to be passed by the Greek electorate. Polls show that Greeks are so anxious to stay within the eurozone that they want to do so even if Greek anti-austerity demands are not met. 

Even it Greece is able to make it through to the end of June when the present bailout ends, it will face huge payments in July and August to the European Central Bank. While press reports emphasize the negative consequences of default and abandoning the eurozone currency union, history shows that results of leaving a currency zone vary considerably with some results causing considerable hardship but others almost immediate benefits.

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Sources:
http://www.nytimes.com/2015/05/11/business/dealbook/imf-and-central-bank-loom-large-over-greeces-debt-talks.html
http://www.theguardian.com/business/2015/may/11/greece-repays-750m-loan-instalment-to-imf-early
http://www.theguardian.com/business/live/2015/may/11/eurozone-finance-ministers-meeting-greece-deadline-live#block-5550ae3fe4b00a7880f44731
http://www.theguardian.com/business/live/2015/may/11/eurozone-finance-ministers-meeting-greece-deadline-live#block-5550ee7ae4b0cbc5d999a83f
http://www.aljazeera.com/news/2015/05/150511192445041.html
http://www.ft.com/intl/cms/s/0/ddb97ae8-f899-11e4-be00-00144feab7de.html#ixzz3ZvglInOT