ATHENS — Greece’s gamble to delay loan repayments to the International Monetary Fund unnerved markets June 5, while prominent government ministers said the country could be forced to hold early elections if creditors don’t back down in bailout negotiations.
Prime Minister Alexis Tsipras was due to brief Parliament on the course of the stalemated talks in an emergency session later in the evening, as outrage over creditor demands grew within his own Cabinet.
The government on June 4 asked to bundle together its four June IMF debt repayments totaling 1.6 billion euros ($1.8 billion) into one on June 30.
The first installment had been due June 5, and the move to delay payment raised fears that Greece’s financial position is even worse than thought, threatening its place in the euro.
It is the first time a developed economy has taken the option of bundling payments — an emergency maneuver allowed by the IMF but last taken up by Zambia in the 1980s.
Labor Minister Panos Skourletis said the decision was a political one.
Although Greece is suffering a liquidity crunch, “of course today’s installment could have been paid easily. There was that possibility,” Skourletis said on Parapolitika radio. “The choice was made for political reasons for us to ask for all the installments to be combined into one.”
The main stock market in Athens fell more than 5 percent, while the Stoxx 50 index of leading European shares was down 1.45 percent. Greece’s borrowing costs also shot up, with the interest rate on the country’s two-year bonds standing at 24.5 percent.
“The probability of an eventual debt default has clearly risen, which could set off a process that includes capital controls to prevent meltdown in the Greek banking system,” said Neil MacKinnon, global macro strategist at VTB Capital.
Greece’s left-led coalition government, elected in January on promises to end deeply resented austerity measures, has been at loggerheads for months with the country’s creditors and the institutions overseeing its bailout — the European Central Bank, IMF and European Commission.
In a visit to Brussels on June 3, Tsipras was handed a proposed deal drafted by the three institutions. He rejected it, saying it insisted on the very budget austerity measures his government blames for shattering Greece’s economy, which has contracted by 25 percent. Greece’s proposals, he said, were the only credible ones.
At least two ministers suggested early elections could be an option if the creditors didn’t back down.
Social Security Minister Dimitris Stratoulis described creditors’ demands as “inhuman (and) degrading,” such as cutting pensions to 300 euros a month. The only solution, he said, was for the creditors to back down.
“If they don’t back down from this blackmailing package … the government won’t back down and therefore … it is obliged to seek alternatives,” he said on Antenna television. “That means elections.”
Skourletis, the labor minister, also said elections were possible if Greece couldn’t reach a deal, with the population to be asked to decide whether they wanted to stay in the euro at any cost.
“The problem now is political,” said Megan Greene, chief economist at Manulife Asset Management. “SYRIZA (lawmakers) seem outraged by the creditor’s proposed program, based on their public comments, which suggests Tsipras will have a very difficult time selling this reform program to his party.”
Hours after the June 4 IMF bundling decision was announced, Tsipras spoke by teleconference with German Chancellor Angela Merkel, whose country is the largest single contributor to Greece’s 240 billion euro bailout, and French President Francois Hollande.
Tsipras told them “that the institutions’ proposal cannot be a basis for an agreement as it doesn’t take in to account the negotiating process over the last few months,” a government official said, on condition of anonymity in line with government rules.
“Optimism was expressed that there will soon be a mutually beneficial agreement,” the official said.
Without a deal, Greece cannot receive the 7.2 billion euros left in its 240 billion euro bailout fund, on which it has relied since 2010. With no other sources of external funding, it faces default and a potential exit from Europe’s joint currency.
“We are in a process in which we want to pull together a plan to put Greece back on a solid financial and economic path. They are a long way from that and could get even further away,” said top Eurozone official Jeroen Dijsselbloem, who is also the Dutch Finance Minister.
“They can’t only take pleasant measures, they also have to take tough measures and that is what the Greek government has to recognize. That also means that if they want to come up with alternatives to our proposal that they have to add up financially and be economically responsible. We’re waiting for those proposals.”
With negotiations at a seeming dead-end, Tsipras spoke June 5 with Russian President Vladimir Putin.
A Greek government official said the two discussed Greece’s interest in participating in an investment bank being set up by Brazil, Russia, India, China and South Africa, known as BRICS. They also discussed bilateral business and energy cooperation.
An opinion poll on June 5 suggested public support for the government’s tough negotiating position is slipping.
The Alco survey for news website Newsit found 47 percent disagreed with how the government was handling negotiations, while 39 percent agreed.
The June 3-4 telephone survey of 1,000 respondents also found 74 percent backed remaining in the euro, with only 18 percent of those polled preferring a return to a national currency.
(DEREK GATOPOULOS and ELENA BECATOROS)