Yorgos Karahalis / Bloomberg

Greece defaults on IMF loan payment

Athens misses $1.9 billion loan payment hours after eurozone ministers reject a last-minute extension request

Greece defaulted on a loan payment to the International Monetary Fund (IMF) on Wednesday, just hours after eurozone finance ministers rejected a last-minute Greek appeal for an extension of its current bailout program.

An IMF representative confirmed that it had not received the funds but also said that Athens requested an extension on repayment, which the IMF executive board would consider in "due course."  

Before the clock ticked down to the Tuesday midnight deadline, when an offer of billions of euros in locked-up bailout funds expired, eurozone finance ministers hastily arranged a conference call to discuss the new Greek request, which was part of an unexpected proposal Athens made late Tuesday for an altogether new two-year rescue deal.

But finance ministers decided there was no way they could reach a deal before the deadline.

"It would be crazy to extend the program," said Dutch Finance Minister Jeroen Dijsselbleom, who heads the eurozone finance ministers' body known as the Eurogroup. "So that cannot happen and will not happen."

"The program expires tonight," he said.

The brinkmanship that has characterized Greece's bailout negotiations with its European creditors and the IMF rose several notches over the weekend, when Greek Prime Minister Alexis Tsipras announced he would put a deal proposal by creditors to a referendum on Sunday and urged a "no" vote.

In missing the $1.9 billion debt repayment to the IMF, Athens could sink deeper into a financial emergency that has forced it institute a nationwide lockdown in the form of capital controls as fears grow that the country could soon fall out of the euro bloc.

Asked on Tuesday morning whether Greece would make the repayment, Finance Minister Yanis Varoufakis replied simply, "No."

By not paying, Greece is in arrears and will no longer have access to funding from the IMF until it pays its debt. IMF Managing Director Christine Lagarde told the BBC last week that that "never happened in the case of an advanced economy."

Greek banks have been closed this week to stem fears of massive withdrawals, although some banks were opened on Wednesday especially for pensioners, who were limited to $133 per person for the week. The European Central Bank (ECB) is still providing money to cover its banks, but it has capped the amount and could stop supporting the country altogether, something that would likely cripple the financial system further.

As long as the ECB continues providing funding to Greece, missing the IMF deadline is not likely to place a new immediate burden on the Greek economy. But a 3.5 billion euro bond comes due to the ECB on July 20, a date that may prove the catastrophic one for Greece’s finances, absent a new arrangement.

Greece's latest offer to creditors involves a proposal to tap Europe's bailout fund — the European Stability Mechanism, a pot of money with about half a trillion euros set up to help countries in need. The prime minister's office said the proposal was "for the full coverage of [Greece's] financing needs with the simultaneous restructuring of the debt.”

For the last several months, Greek and other European officials have been negotiating on the terms of extending the current bailout arrangement. But Athens, which feels that the terms of previous loans were far too onerous and crippled Greece’s economy, changed tack on Tuesday and proposed a different loan agreement.

But the request for a new bailout arrangement was linked to a last-minute Greek request on Tuesday for an extension of loans to cover the country’s increasingly dire financial prospects. That extension request was rejected late on Tuesday.

Dijsselbloem, however, said the finance ministers would study the new proposal and that they would hold another conference call Wednesday.

European officials and Greek opposition parties have been adamant that a "No" vote in Sunday's referendum would mean Greece will leave the euro and possibly even the EU, though it wasn't clear whether there is a legal recourse for its dismissal.

The Greek government says this is scaremongering, and that a rejection of creditor demands will mean the country is in a better negotiating position.

In Athens, more than 10,000 "Yes" vote supporters gathered outside parliament despite a thunderstorm, chanting "Europe! Europe!"

Most huddled under umbrellas, including Athens resident Sofia Matthaiou.

"I don't know if we'll get a deal. But we have to press them to see reason," she said, referring to the government. "The creditors need to water down their positions, too."

The protests came a day after thousands of government supporters advocating a "No" vote held a similar demonstration.

On Monday, European Commission President Jean-Claude Juncker made a new offer to Greece. Under that proposal, Tsipras would need to accept the creditors' proposal that was on the table last weekend. He would also have to change his position on Sunday's referendum.

Commission spokesman Margaritis Schinas said the offer would also involve unspecified discussions on Athens's massive debt load of over 300 billion euros, or around 180 percent of GDP. The Greek side has long called for debt relief, saying its mountainous debt is unsustainable.

A Greek government official said Tsipras had spoken earlier in the day with Juncker, European Central Bank chief Mario Draghi and European Parliament president Martin Schulz.

On the streets of Athens, long lines formed again at ATMs on Tuesday as Greeks struggled with caps on withdrawals, after a bank run over the weekend in the wake of the referendum announcement. Cash withdrawals have been limited to 60 euros, or $67, per day. Banks are to remain shut until at least next Monday.

The elderly have been hit particularly hard, with tens of thousands of pensions unpaid as of Tuesday afternoon. Many found themselves completely cut off from any cash because they do not have bank cards.

The Finance Ministry said it would open about 1,000 bank branches across the country for three days starting Wednesday to allow pensioners without bank cards to make withdrawals. But the limit would be set at 120 euros for the whole week, rather than the 60 euros per day for those with bank cards.

The crisis has roiled global markets as investors fret over the repercussions of a Greek debt default and its exit from the euro — developments that could derail a fragile global economic recovery as well as raise questions about the long-term viability of the euro.

Al Jazeera and wire services

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