The International Monetary Fund is blocking a critical €12bn ($17bn) aid payment to Greece just weeks before it is due, insisting it cannot go through without concrete assurances from European officials on a new Greek bail-out.
European finance ministers went into a meeting on Sunday believing the two issues had been separated and that the payment would go ahead as planned in early July once a new austerity plan was approved by the Greek parliament. Recent public commitments stating the EU would ensure Greece remains solvent through next year were thought to be enough to secure the backing of the IMF, due to disburse €3.3bn of the aid payment.
But amid continuing disagreement between eurozone countries over the terms of a new bail-out, IMF officials told the emergency gathering they needed firmer commitments before making the payment, according to three eurozone officials briefed on the meeting. IMF officials said they had been consistent in their determination that funding must be in place for the next year before they can distribute the next tranche. Both the IMF and European Union are also insisting Greece pass new austerity measures.
“That needs to be done before we can move forward and we are hopeful the conditions can be met with alacrity,” John Lipsky, the acting head of the IMF, said at a news conference. Greece must get the €12bn payment before July 15 or it will default on its sovereign debt.
Concern over the Greek crisis has caused mounting alarm in the US. Finance ministers from the Group of Seven economic powers held a half-hour, late-night conference call on Sunday to be updated on European deliberations – a call one EU diplomat described as a sign of US concern. Another G7 call was scheduled for late Monday.
IMF policy prevents it from disbursing aid to a country that cannot pay its bills for the next 12 months. Eurozone finance ministers publicly acknowledged on Monday that under the current €110bn bail-out, Greece will run short in March 2012, when Athens was expected to return to the bond market.
The tensions over a second bail-out centre on the insistence by Germany and its northern allies that substantial costs of the new rescue be borne by private bondholders. But in its formal review of the Greek programme, the IMF called the bondholder debate “unproductive” and warned failure to take decisive action threatened the nascent economic recovery in Europe. A second emergency meeting has been called for July 3 to resolve the impasse.
Additional reporting by Alan Beattie in Washington