Greece is on course to miss a crucial debt repayment, amid a bitter row with creditors about who is to blame for the breakdown in talks on its eurozone future.
After five years of painful austerity and four months of wrangling with its creditors, Greece’s international bailout will come to an end on Tuesday, as a €1.6bn (£1.13bn) payment to the International Monetary Fund falls due.
A Greek government official confirmed on Monday that Athens would not make the €1.6bn loan instalment, which is due to the IMF by 6pm Washington time (11pm BST, midnight in Brussels and 1am in Athens). The Washington-based fund has long said that late-payers do not get a grace period.
Failure to pay means Greece will become the first developed nation in history to default to the IMF and joins a club of countries in arrears that includes Sudan, Somalia and Zimbabwe.
Greece owes the IMF $26bn, almost four times greater than the total value of overdue funds in the IMF’s history, according to the Council on Foreign Relations.
While one missed payment is not expected to trigger a wave of defaults, it is a defining moment in the Greek crisis that some European leaders fear could unravel 60 years of European integration.
On Monday night, thousands of anti-bailout protesters poured on to the streets of Athens and Thessaloniki, accusing Greece’s creditors of blackmail and calling for a no vote in a referendum on Sunday.
European leaders have lined up to warn Greeks that a no vote means the end of its membership of the single currency and a return to the drachma.
The looming debt default has brought the euro down to a seven-year low against the pound, although the currency edged up from a four-week low of $1.0955 against the dollar in trading in Asia on Tuesday.
European markets – hit by a wave of selling on Monday that caused the biggest damage to bank shares – were expected to be hit by further losses. Asian markets, also hit by jitters about China’s slowing economy after a recent cut in interest rates, were calmer on Tuesday as investors went into wait-and-see mode. Japan’s Nikkei index rose 0.34%, while the broader MSCI Asia Pacific index (Asian shares minus Japan) was up 0.1%.
The CBOE Volatility index, often referred to as the “investor fear gauge” because it measures the premium traders are willing to pay for protection against a drop in prices, has risen more than 30% to a nearly five-month high.
Greek banks will remain shut on Tuesday, although about 850 branches were expected to open to pay pensions that fall due.
Greece is almost out of money, putting the focus on the European Central Bank, which on Sunday turned down a request from the Bank of Greece for €6bn in emergency funds to cover panic withdrawals.
The ECB has pumped €89bn into the Greek financial system, but pressed pause on its emergency aid programme when talks broke down at the weekend.
Benoît Cœuré of the Bank’s governing council said in an interview with Les Echos that Greece’s exit from the eurozone could not be excluded, although he hoped it would stay part of the currency union. The ECB’s emergency funding for Greek banks was under constant review, he added.
Along with the rest of the creditors, Cœuré blamed the Greek authorities for the breakdown in talks. However, the Greek prime minister, Alexis Tsipras, denied Greece had walked away from talks. In a defiant TV address on Monday night, he urged Greeks to vote no in the referendum on Sunday.
“The greater the number of no [votes], the greater the weapon the government will have to relaunch negotiations. Greece never left the negotiating table, it is still at the negotiating table.”
European leaders say the referendum is a choice between staying in the euro or going back onto the drachma. “It’s the Greek people’s right to say what they want their future to be. It’s about whether the Greeks want to stay in the eurozone or take the risk of leaving,” said the French president, François Hollande.
The European commission president, Jean-Claude Juncker, said he felt personally betrayed by the Greek government. “You shouldn’t commit suicide because you are afraid of dying,” he said in remarks widely criticised in Greece, where a rise in suicides has been linked to cuts in wages and pensions.
The ratings agency Standard & Poor’s said the chances of a Greek exit from the eurozone had risen to 50%, which it warned could lead to serious foreign currency shortages and a rationing of fuel.
Capital Economics, one of the most bearish forecasters in the City of London, argues that even a yes vote may not keep Greece in the eurozone if the economy does not recover. “Without a strong upturn in the economy, there would still be a high chance of a Greek exit from the eurozone in the following months or years as Greece was unable to re-access bond markets.”
This article was written by Jennifer Rankin, for theguardian.com on Tuesday 30th June 2015 08.28 Europe/Londonguardian.co.uk © Guardian News and Media Limited 2010