The International Monetary Fund (IMF) is backing away from a potential third Greek bailout package, according to Spanish newspaper El Mundo.
The paper cites a lack of “really effective action” and Athens’ recent re-hiring of public employees who were previously made redundant under austerity measures as reasons for the IMF’s stance.
Every recent IMF repayment by Greece has been hotly anticipated, with analysts attempting to work out which of the major disbursements Athens will fail to make.
El Mundo notes that the only countries which have previously defaulted with the IMF are Zimbabwe, Somalia and Sudan.
If the report is accurate, that would leave any future deal completely in the hands of the Eurogroup (the bloc of eurozone finance ministers), the European Commission and the European Central Bank (ECB). Many Eurogroup members are already reluctant to foot the bill, and will not be happy to hear they’re taking a bigger chunk.
The current tranche of €7.2 billion ($8.05 billion, £5.17 billion) that’s being negotiated with Greece’s new government is the final instalment of the second bailout package. After that, any new deal would have to start afresh.
Greece’s first and second bailout were worth a combined €240 billion (£173 billion, $269 billion). Nobody expects a third package to be that large, but Spanish finance minister Luis de Guindos has hinted at a bailout worth around €50 billion (£36 billion, $56 billion).
Here’s what HSBC European economist Fabio Balboni had this to say in a note:
The focus of the negotiations appears to be shifting to the third programme of financial assistance needed after June, also raising the possibility of a referendum to decide on the agreed set of reforms and, ultimately, Greece’s eurozone membership. Creditors appear to be more favourable towards this option, possibly also as a way to overcome the lack of trust towards Greece’s authorities. A referendum could also provide a facesaving strategy for the Greek government.
The official position of the Greek government is that it wants no more bailout deals, and wants to go back to the start to renegotiate Greece’s debts entirely, modelled on the 1953 London agreement on German debts. However, there’s next to no appetite for that anywhere in the rest of Europe, and the country desperately needs funding.
Prime Minister Alexis Tsipras has previously suggested a referendum if he can’t get a deal that’s consistent with his party’s leftist programme. As HSBC’s Balboni suggest, this might let him off the hook — though Greek voters are solidly against austerity measures, repeated polling suggests they are also largely committed to membership of the euro, even if that means further deep austerity.
But without some sort of agreement, a cash crunch is looming for Greece, and a default will follow.