After months of uncertainty, the Greek government is once again on the verge of defaulting on its creditor obligations and the reasons for the trouble remain the same. The country cannot agree with its creditors about how far it should go on the austerity path and implemention of structural reforms.
There are a number of risks which are lurking for the country next week as it prepares to pay pensions and salaries and meet an obligation to the International Monetary Fund (IMF) totaling $770 million.
The Greek government communicated this week that it would not be able to both repay the IMF and fulfill its pension and salary obligations
The Euro Group meeting of finance ministers is scheduled for Monday, the 11th of May. In the run up to the event, there is a big divergence of views once more. While European leaders are skeptical about any progress being made next week, the Greek finance minister Yanis Varoufakis has taken to the wires again saying that a deal might be close.
The German finance minister Wolfgang Schäuble remained hawkish on the matter and said that any future aid to Greece hinged on implementation of substantial reforms. He indicated that the Greek government was not able to make any commitments in this respect and said that current policies of Greece needed to make sense.
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Meanwhile, the Group chair, Dutch finance minister Jeroen Dijsselbloem, cautioned yesterday that the no solution to the Greek conundrum should be expected on Monday.
The IMF has expressed its worries about the Greek bailout program due to the country failing to meet its targets. Debt levels have remained higher than projected and the global lender of last resort’s economists are indicating that the institution is not comfortable to continue its partial commitment to the bailout program.
The Greek government communicated this week that it will not be able to both repay the IMF and fulfill its pension and salary obligations which are due to be disbursed later in May. In an extreme step, the Greek government has mandated all municipalities and state owned companies to deposit their cash reserves at the Bank of Greece.
The ECB once again increased its Emergency Lending Assistance (ELA) to Greek banks by €2 billion. The total obligations of the Greek banking system to the ECB ELA program have reached €78 billion.
As the impasse continues, the likelihood of a deal being struck is getting slimmer. That said, if history is any guide, European leaders have managed to come up with ingenious last minute solutions to prevent the worst possible outcomes.
We will leave our readers to opine on the matter as to whether a Greek default is such a negative outcome.