Greece will not make €300m IMF payment on Friday

Greece will not make its €300 million to the IMF on Friday, but is instead proposing to pay its four instalments due to the Washington-based fund in one payment at the end of this month.

The IMF this evening confirmed the Greek authorities had informed the institution that it plans to bundle the country’s June payments into one, which is due on June 30th.

The deployment of a rarely-used but legal practice may buy Greece time as it struggles to agree a new reform deal with lenders. But it also indicates the country’s precarious financial position.

Greece was last month forced to tap its own reserves at the IMF to meet a €750 million payment. The last debtor country to bundle payments to the IMF was Zambia in the 1970s.

Friday’s payment of approximately €300 million is the first of four repayments totalling €1.6 billion due to the IMF this month.

More than four months after the election of a Syriza-led government in Athens, the Greek government is under pressure to unlock up to €7.2 billion in bailout funds due to it under its second bailout as it faces a crash-crunch. It has been unable to strike a deal with creditors on a new reform package.

Greek Prime Minister Alexis Tsipras will address the Greek parliament on Friday on the latest developments in the bailout negotiations, amid increasing signs that he is facing a backlash from within his own party over the reform deal on offer from lenders.

After negotiations between the Greek Prime Minister and European Commission president Jean-Claude Juncker and the head of the eurogroup Jeroen Dijsselbloem ended without agreement early this morning in Brussels, Mr Tsipras is expected to brief his cabinet tomorrow morning on the latest bailout discussions before addressing the Parliament at 6 pm local time.

With both sides in the negotiations issuing counter-proposals this week outlining suggested reform measures, a key area of contention remains pension reform.

Leaked copies of a five-page report presented by Mr Juncker to the Greek Prime Minister on Wednesday night show that Greece’s international lenders want Greece to impose further pension reforms equating to savings of 1 per cent of GDP. This includes controversial proposals to cut a subsidy paid to poorer pensioners and raise the retirement age to 67.

It also proposes the introduction of a 23 per cent standard VAT rate, eliminating various exemptions, and rules out any reversal of previously-implemented labour market reforms.

The creditors’ proposal does make concessions in terms of Greece’s primary surplus target, however, proposing a primary surplus of 1 per cent this year, gradually rising to 3.5 per cent in 2018.

But while the Greek proposal is understood to have offered higher-than-expected targets for the primary surplus, this could indicate that Athens is unwilling to compromise in other areas, including pension reform.

In a sign of the resistance Mr Tsipras is likely to face from within his own party to the new reform proposal, Greece’s economy minister Euclid Tsakalotos, the chief negotiator with the creditors, told Channel 4 news he was “shocked” by what he described as the ultimatum issued by Mr Juncker and Mr Dijsselbloem on Wednesday night.

Amid fears that Greece's next hurdle could be a political crisis or general election as Prime Minister Tsipras seeks to secure political support from the Government, finance minister Yanis Varoufakis appeared to play down the need for an agreement in the next few days, telling Sky News that, "objectively speaking", Greece has until June 30th to come up with a deal. The finance minister declined to specify when the country may run out of cash.

Opposition leader Antonis Samaras urged Mr Tsipras not to call a general election and instead seek a national consensus on the reform plan.

With German Chancellor Angela Merkel keen to resolve the issue before the G7 summit opens in Bavaria on Sunday, negotiations could continue in Brussels into the weekend.

In a sign of the German chancellor's willingness to accelerate discussions, Chancellor Merkel convened a meeting on Greece on Monday night which was attended by French president Francois Hollande and the heads of the IMF, ECB and the European Commission.

Speaking in Brussels yesterday, European Commission President Jean-Claude Juncker said that “some progress” had been made at Wednesday night’s meeting with Mr Tsipras but it was “not sufficient.”

Exiting the meeting in Brussels on Thursday morning, Mr Tsipras said he believed an agreement was “in sight.”

“We are very close to an agreement on the primary surplus. That means all sides agree to go further without tough austerity measures of the past,” he said, though he ruled out scrapping the income supplement for low-paid pensions and the proposed changes to the VAT system.