ATHENS, July 1 (PNA/Xinhua) — Greece on Wednesday became the first developed country in arrears to the International Monetary Fund (IMF) after World War II, heading to an abrupt default and possible “Grexit” should last-minute ongoing efforts to reach a compromise debt deal on a third bailout program fail.
After Tuesday midnight, the IMF said in a statement that for the second time in a month, Greece has missed a loan installment payment and was “in arrears.”
The Fund, which avoided the term “default” for the time being, also confirmed that its Executive Board will examine “in due course” a last-minute request from Athens for an extension of Greece’s repayment obligation that fell due on June 30.
Under IMF rules, overdue borrowers are ineligible for further funds as long as they are in arrears. Procedures that could lead to the clear declaration of a credit event and default could start within the next weeks.
At the same time, Greece’s five-year bailout program with eurozone partners expired as five-month negotiations with creditors on the terms of further financing in exchange for fiscal adjustment measures and reforms did not end conclusively before the deadline.
Without a bailout program to support the local banking sector for at least a few more weeks, Greece’s position was even weaker, local media commentators and analysts said.
Greeks entered a week-long bank holiday and capital controls Monday, as banks were dealing with severe liquidity problems.
According to estimates, even with a 60-euro (US$ 67) limit per day per bank account in cash withdrawals, Greek lenders may run out of cash by next Monday without any more aid from the Emergency Liquidity Assistance (ELA) mechanism.
The European Central Bank (ECB) will examine Greece’s request for an extension of the ELA, which was frozen during the weekend after the Greek government’s surprise call for a July 5 referendum on a draft proposal presented by creditors last week.
Under ECB rules, the Bank cannot support insolvent banks in a country that is no longer solvent, Sotiris Nikas, a financial expert, said in the Kathimerini newspaper.
In addition, the eurozone could demand the immediate payment of 141.9 billion euros (US$ 158.9 billion) it has granted Greece.
Against this backdrop, the Eurogroup has called an emergency teleconference for Wednesday noon to discuss Athens’ proposal for a new 30-billion-euro (US$ 33.6 billion) aid package for the next two years.
European leaders, including German Chancellor Angela Merkel, said Tuesday that the EU will most likely decide on any deal with Greece after the results of the referendum.
Meanwhile, the international rating agency Fitch downgraded Greece’s long-term credit rating from CCC to CC.
Fitch’s experts said the developments in the past few days have increased risks that Greece will again fail to meet its debt obligations in the near future. They estimated that the Grexit risk stood at about 50 percent.
Regardless of whether the term “default” was formally used or not and officials’ reassurances that there will be no shortages in food products, medicines or gas, Greek citizens are already feeling the pinch in their daily lives.
Pensioners struggling to make ends meet each month after six years of recession and austerity lined up outside banks Wednesday to withdraw up to 120 euros, the maximum amount allowed.
Long lines have also been forming outside ATMs, gas stations and supermarkets since the weekend.
Importers cannot receive any goods due to the capital controls as suppliers have not been giving products on credit to Greek companies for months.
Several companies, especially in the retail sector, have asked their employees to take their annual leaves in the coming days, and notified them that if the turmoil continues, they would be dismissed without pay. (PNA/Xinhua)