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Greece might sidestep June 5 IMF deadline if funding deal close: officials

MAY 26, 201511:47 PM

[BRUSSELS] Cash-strapped Greece could avoid paying back the IMF on June 5 without defaulting if it lumps together all IMF repayments due in June and pays them at the end of the month, officials said on Tuesday.

This would also win Athens more time to negotiate a funding deal.

Greece has to repay the International Monetary Fund 300 million euros on June 5, the first of four instalments due in June that total 1.6 billion euros.

Cut off from markets, Athens has said it will not be able to make the June 5 payment without new loans from the eurozone, which insists it can only lend Greece more if the country agrees to reforms that would make its debt sustainable.

"There is the possibility of putting together several payments that Greece would need to make to the IMF in the course of June and then just make one payment," a senior eurozone official close to the talks with Athens said.

A second official close to the talks also acknowledged that possibility.

"That's basically a technical treasury exercise and they could tell the IMF that this is how they want to do it and the IMF would probably have to be OK with that," the first official said.

The missing of the June 5 payment day, if a lump payment were to come later, would not constitute a default, officials said, although it might trigger a negative market reaction.

"The markets would probably react," the official said.

A Greek government spokesman on Monday dismissed that possibility of lumping the repayment.

Officials noted that Greece could only use such a move if there was a credible prospect of a funding deal that could be communicated to markets and its citizens.

"So they would get a few extra weeks. But unless there is some perspective how they would deal with this full payment, it would be a risky thing for the Greeks to do. And the consequences would be unpredictable," said the first official.

The second official said the extra time might not be useful and could even limit the European Central Bank's room for manoeuvre with its emergency liquidity assistance for the Greek banks, which diminishes as Greek deposits flow out.

"The extra couple of weeks would not give the Greeks enough time to get any other money from anywhere else. In fact, it might make it less likely they will get borrowing room from the ECB," the second official said.

On Thursday eurozone deputy finance ministers will hold a teleconference to take stock of the progress in discussions, but no deal with Athens is expected by then.

"The Greek red lines are too rigid," the first official said.

The main difficulty is for both sides to agree on the size of the primary surplus - the budget balance before debt servicing costs - that Greece should be running to make its debt sustainable.

Eurozone officials said they might agree to a surplus of 1.0-1.5 per cent of Greek gross domestic product - a far cry from the 4.5 per cent envisaged in the bailout programme signed by the previous Greek government.

"The Greeks say they are already there (at that surplus level), but we don't believe that. They are not yet there. There will have to be additional fiscal efforts in order to have such a primary surplus," the first official said.

Greece's creditors had hoped that a Greek Value Added Tax reform would help solve the problem. But it did not.

"What we saw was not exactly what had been promised. We got a steep reduction of the top VAT rate but still many exceptions left and the idea that cash payments and card payment would be treated differently - that's not going to work. There will have to be something else," the official said.

REUTERS