ECONOMY

Double default day for Greece?

double-default-day-for-greece

Greece is facing the risk of a double default, as loans totaling more than 2 billion euros expire on Tuesday and the state still did not have the money needed to pay them up until late last night.

The main obligation concerns the June tranches to the International Monetary Fund that were bundled up earlier this month and add up to 1.6 billion euros, while there is also a 472-million-euro installment of a loan that the Bank of Greece issued to the state in 1994. Furthermore, the expiry of the bailout program tonight means that the country is missing out on access to funds totaling 16.3 billion euros from the eurozone.

The deadline Greece was given to pay the 1.6 billion euros to the IMF will expire at midnight on Tuesday. However, sources said yesterday that the state will not make the payment as it does not have the required funds. The Finance Ministry had not issued the order for the payment of the tranche by late Monday, and sources commented that the state coffers did not even have the money needed to pay the pensions due on Tuesday, let alone the IMF.

If Greece defaults on its IMF payment, an arrears process will be triggered. Funding by the IMF to Greece will cease automatically, with the main problems seen coming from the stance the European Central Bank takes regarding the supply of liquidity to the local credit system. Worse, if Greece does not pay the IMF, the European Financial Stability Facility (EFSF) will have the right to demand the immediate repayment of its loans to Greece, amounting to 141.9 billion euros.

The state must also pay a loan issued before the country’s entry to the eurozone. The payment of 472 million euros to the Bank of Greece cannot be deferred, and given that the money required is not there, the central bank will have to send a letter to the state and inform the ECB about the payment default, with the consequences from the Eurosystem being unknown. It is certain this will not work in Greece’s favor when it comes to asking for liquidity from the ECB.