IMF Warns No Leeway on Payment as Merkel Urges Greece to Bow

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Greece at Crossroads as Europe Braced For Worst

International Monetary Fund chief Christine Lagarde said Greece won’t be given a grace period if it fails to make a payment at the end of the month as Chancellor Angela Merkel said there’s still time to reach a deal on aid.

Lagarde, whose policies were labeled “criminal” last week by Prime Minister Alexis Tsipras, said that Greece will immediately be considered in default unless it pays about 1.5 billion euros ($1.7 billion) due to the fund on June 30.

“It will be in default -- it will be in arrears vis-a-vis the IMF, yes, on July 1,” Lagarde said at a press conference in Luxembourg where euro-area finance minister were meeting on Thursday to discuss the deadlock over Greece. “I hope it’s not the case, I really do.”

Greece’s bid to obtain aid and shore up its position within the currency union is going down to the wire, with its euro-area bailout agreement expiring in less than two weeks, the same day the IMF payment comes due. Irish Finance Minister Michael Noonan said the Luxembourg talks could prepare the ground for more in-depth discussions when European leaders meet in Brussels next week.

Yields on Greece’s benchmark 10-year bond rose 14 basis points to 12.6 percent at 5:03 p.m. in Luxembourg. That’s up from a 12-month low of 5.52 percent on Sept. 8. The Athens stock exchange rose 0.4 percent and is down 34 percent since September.

With the European Central Bank reviewing the emergency funding keeping the Greek banking system afloat, Merkel signaled her desire to keep the process alive at least until next week’s summit of European leaders.

Debt Relief

“I remain convinced that where there’s a will there’s a way,” Merkel told lawmakers in Berlin on Wednesday. “If Greek authorities show this will, then an agreement with the three institutions is still possible.”

Eurogroup chief Jeroen Dijsselbloem said that the euro area’s November 2012 offer to consider debt relief if Greece meets the terms of its bailout remains valid. Greek newspaper Kathimerini earlier reported that the European Commission and the ECB were drafting a statement to reassert that commitment.

Greece’s demand for debt relief has been one of the stumbling blocks in negotiations over aid. The country is also refusing to accept the IMF’s demand to reform its pension system.

“Some time ago Mario Draghi, the president of the European Central Bank, said quite correctly that, for the euro to succeed anywhere, it must succeed everywhere,” Greek Finance Minister Yanis Varoufakis said as he entered the talks. “We think he’s absolutely spot on. And today we are going to be presenting the Greek government’s ideas along those lines. The purpose is to replace costly discord with effective consensus.”

No Grace Period

Dijsselbloem said the euro area hasn’t backed away from its 2012 promise to ease the terms of Greece’s debt -- if the Greek government meets its bailout conditions and can show that the relief is necessary. “That promise is of course still valid, but the conditions were quite clear,” the Dutch finance chief said.

EU finance ministers didn’t discuss the prospect of a Greek default to the IMF, and its consequences for the EU’s firewall fund, at their meeting in Thursday. Under IMF rules, once a payment becomes overdue, a nation immediately becomes ineligible for additional funds until the arrears are cleared, according to a 2012 IMF report.

“I have a deadline, which is the 30th of June, when a payment is due from Greece,” Lagarde said. “There is no grace period.”

Game Over

Austrian Finance Minister Hans Joerg Schelling was the first to declare the effort to broker an aid deal has failed.

“The game is finished,” Schelling told reporters ahead of the Eurogroup meeting. Greece can’t “simply reject every proposal,” he said.

Finnish Finance Minister Alexander Stubb went almost as far in his assessment of the outlook. “I always believed that at the end of the day we could find some kind of deal,” Stubb said. “I think we have come pretty much to a dead end.”

French Finance Minister Michel Sapin echoed Merkel’s view that a deal is still possible. He told reporters that finance ministers need to resume dialogue with Greece and be ready for “confrontation if necessary.”

(An earlier version of this story corrected the spelling of Angela in the fourth paragraph.)

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