Will tapping into reserves be even more detrimental to Greece?

As the economic crisis in Greece worsens, with nearly 30 per cent unemployment, the Greek finance minister Yanis Varoufakis, has reassured that Greece has the funds to repay a €448 million debt – accumulated following the country’s first bailout in 2010 – to the IMF.

After the unexpected meeting with IMF managing director Christine Lagarde, Mr Varoufakis assured that Athens “intends to meet all obligations to all its creditors, ad infinitum”. He went on to say that the government plans to “reform Greece deeply” and attempt to better the “efficacy of negotiations” with its creditors, known as the Brussels Group – comprised of the IMF, the European Commission and the European Central Bank.

Since Greece’s efforts to find allies in the US and Russia have thus far been unsuccessful, and an agreement on additional funding from the country’s Euro partners is still weeks away, it will likely be forced to fall back on its diminishing reserves to pay back the debt. However, the final decision to proceed with the payment still rests with the government.    

Just last week, sources in Brussels reported that Greek government representatives had informed Eurozone officials that they could not make the payment due to lack of funds whilst the Greek finance ministry said that it could. To add further confusion, on Thursday a Greek government official told the Daily Telegraph that in order to keep public services running and to pay pensions, it may have to miss the payment.

Contrary to the above statement, senior government officials have recently had to repeat assurances that Greece is not about to fold on debt payments, and that civil wages would also be paid. “There is money for the payment of salaries, pensions and whatever else is needed in the next week,” said the deputy finance minister Dimitris Mardas.

If Greece fails to make the payment, they will still have thirty days to cough up before it is officially in default. It is difficult to guess what the Greek government will do; both options entail substantial risks, oscillating between steeper adversity and a catastrophic meltdown.

Meanwhile, Greece is still engaged in strenuous negotiations with its creditors over the delayed €7.2 billion bailout programme, proposed by the government to repair the economy. Greece’s Syriza administration seems remarkably casual about resuming the discussions with its creditors on 13^th April. 

This, of course, begs the question of how Greece plans to repay yet another IMF debt this year of more than €9 billion, one which fund officials insist cannot be rescheduled unless Athens agrees to a fresh IMF programme, something the new government does not want to do.

This is a broad issue that has induced many a headache within the political domain. There is but one way that may be able to rectify the situation in Greece: for the Brussels Group to forgive the €317 billion debt, so that the Greek economy – and society – may recover from more than six years of austerity and recession. 

Ernestas Samuolis