IMF Offers Bleak Outlook for Greece; Further Debt Writeoff May Be Needed
- The IMF issued an ominous financial assessments further complicating Greece’s future
- Moody’s and Fitch cut Greece National Bank’s credit rating amidst inability to secure new deal
- ECB board member says ELA is not an infinite fund, outcome of referendum will determine subsidy
Discussions of progress on Greece will likely stall as the July 5th referendum approaches. Yesterday the Eurozone took a united approach to shut out talks prior to the vote on its last proposal. Today, one of Greece’s creditors, the International Monetary Fund, came out with discouraging comments and ominous financial figures that show the country’s debt position is unsustainable in the long term.
The IMF’s projections for Greece specified the country needs an extra €40 Billion to survive over the next three years to support economic growth. The country would also need large-scale debt relief to create “breathing space” and subsequently stabilize the economy. The IMF also further encouraged the Eurozone creditors to extend the grace period to 20 years and debt amortization period to 40 years on all existing loans. The IMF cut Greece’s growth prospects for this year to 0.0% from a previous forecast of 2.5% growth. The dismal report comes portentously ahead of “Yes/No” rallies occurring in Athens.
Offering little further leeway on the liquidity front, a governing council member for the ECB, Josef Bonnici, said the bank would take into account the outcome of the referendum prior to assigning more ELA funds for Greece. Currently, the ECB has capped the country’s access to emergency liquidity at €89 Billion. He went on to say the “ELA is not an infinite fund”. The value of collateral Greek banks must offer in exchange for ELA will be addressed once again on Monday.
Greece’s credit rating was cut earlier this week by S&P from ‘CCC’ to ‘CCC-’. Two more major credit agencies, Moody’s and Fitch, downgraded its outlook as well. Moody’s downgraded Greece’s government bond rating to ‘Caa3’. The agency also placed Greece under review for another possible downgraded in the coming weeks. Moody’s cited an increased risk to private sector creditors regardless of the referendum and its outcome. Fitch followed, reducing two Greek banks to ‘CC’ in a move classified as a “sovereign downgrade.”
Greek Prime Minister, Alexis Tsipras, made headlines in an interview when asked what a “yes” vote would ultimately lead to. He remarked, “I am telling you that I cannot be a prime minister under all circumstances.” He went on to say the budgetary targets they produced weren’t accepted, and he did not want to harm Greece. The Greek Prime Minister claims a Greek proposal is on the table, despite the ultimatum. He indicated there is a scheduled meetingin Brussels on Monday following the referendum.
Greek finance minister, Yanis Varoufakis, echoed Tsipras’ comments. Varoufakis said he would “rather cut my arm off” than sign a new accord that fails to restructure Greek debt. He reiterated that he would step down if Greece supports the Institutions’ latest bailout proposal, which would require tax increases and austerity for continued aid.
The debt stricken country is officially in arrears with the IMF on a failed payment, news that Greece will require a further debt write off may cause Greek citizens to readjust their stance going into the referendum. Many believe the vote will hold the key to the Eurozone moving forward; though it has been said negotiations would continue regardless of the outcome.
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