ATHENS — Stark warnings to Greece over its stalled bailout talks hit Greek shares hard June 12, with the main Athens index down 4 percent within an hour of opening.
The drop comes a day after the International Monetary Fund pulled its negotiators out of the talks in Brussels, saying there had been no progress and that major differences remained in key issues.
The move contrasted with optimism expressed by the Greek side that a deal is possible by the end of the month. Greece’s 240 billion-euro ($270 billion) bailout expires June 30, at which point the country will lose access to the rescue loans it desperately needs to repay debts and avoid a default that could force it out of the euro.
The news also weighed on European markets, with most indexes in the region down. Germany’s DAX, for example, was 0.4 percent lower. The euro has also fallen sharply, trading 0.7 percent lower at $1.1169.
“The IMF unexpectedly blew a giant hole in the recent optimism,” said Michael Hewson, Chief Market Analyst at CMC Markets.
It looks increasingly like next week’s meeting of Eurozone finance ministers in Luxembourg could prove decisive in sealing Greece’s financial fate.
On June 10, European Union President Donald Tusk warned Greece there was “no more time for gambling. The day is coming, I’m afraid, that someone says the game is over.” The June 18 meeting, he said, “is really crucial and should be decisive.”
Even though the IMF pulled out of the talks, discussions are set to continue over coming days.
German Chancellor Angela Merkel said it’s important to continue with the talks. “Where there’s a will, there’s a way, but the will must come from everybody,” she said in a speech in Berlin.
Greece’s creditors — its fellow Eurozone states and the IMF — want the country to commit to new economic reforms before they disburse the last 7.2 billion euros ($8.2 billion) left in Greece’s bailout fund.
The final installment has been pending since last year and with no access to the international borrowing market, Greece has been struggling to pay both its international debts when they fall due, and to continue paying salaries and pensions.
Without outside help, it is unlikely Athens will be able to repay a roughly 1.6 billion-euro debt installment due to the IMF on June 30 and larger debts due to the European Central Bank in July and August.
“We are coming to a head, and that the situation will change fundamentally in the coming couple of weeks,” said David Mackie of JP Morgan.
“Our judgment remains that Greece will offer concessions to get a deal. The Greek position deteriorates dramatically beyond the end of June, as capital controls would likely make the political and economic situation in Greece even more difficult than it is now.”