Greece becomes first developed nation to default on international obligations

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Greece has missed its June deadline to pay €1.6 billion to the IMF, becoming the first developed country to default on its international obligations.

The news hardly comes as a surprise. On Tuesday, Greek Finance Minister Yanis Varoufakis told journalists that Athens would not repay the €1.6 billion IMF debt on time.

Skipping a payment to the IMF is referred to as arrears – owed money that should have been paid earlier – in the terminology of the Fund. It should be officially reaffirmed by the IMF chief Christine Lagarde who in a month should notify the Executive Board of the Fund.

In fact, this could be classified as a default, as any other failure to pay its debt on time. This could trigger a cross-default on Greece’s multibillion-dollar commitments to the European Financial Stability Fund (EFSF). The IMF cannot issue new loans the country, which has arrears.

The question now is what’s next for the country’s financial system, the people and its membership in the Eurozone.

On Tuesday Greece asked the European Stability Mechanism (ESM) that includes all of the 19 Eurozone members for a new bailout that’ll cover the country’s financial needs during the next 2 years.

The Eurogroup refused to extend the bailout program to Greece, rejecting Greek Prime Minister Alexis Tsipras’ latest request for a new bailout, Finnish Finance Minister Alexander Stubb said on Tuesday.

The Greek government on Tuesday asked for a new bailout program from ESM that would cover all its financial needs for the next two years. The request included a restructuring plan for Greece’s debt to the European Financial Stability Facility (EFSF), which accounts for about 63 percent of the country’s total debt.

German Chancellor Angela Merkel said on Tuesday that her country will not consider a third bailout for Greece before a referendum in Greece on July 5 takes place, various media outlets have reported.

On June 5 Greece invoked a 1970s IMF rule that allowed it to bundle all of its €1.6 billion payments due June into one, thus avoiding immediate default. However, it failed to pay even under these conditions.

Greece is also due to pay €6.6 billion to the ECB in July and August.

The ECB has already turned down the Greek call for expanding €89 billion emergency liquidity assistance (ELA) to Greece by €6 billion to tackle deposit flight. This resulted in closing banks for a week and limiting withdrawals to €60 a day.

The Greek government led by Prime Minister Alexis Tsipras came to power aiming to end austerity measures, and has repeatedly said its goal is to stay within the euro.

On Saturday, the government announced a national referendum on the creditors’ offer to the country.

Even if the referendum is not on Greece leaving the Eurozone, many leading European politicians have said that a “No” answer would be a refusal to stay with Europe.

Voting “No” would mean a suicide for Greece, said European Commission President Jean-Claude Juncker Monday. However, German Finance Minister Wolfgang Schaeuble said Tuesday Greece can maintain its membership in the Eurozone even if the nation votes against austerity reforms this Sunday.

Source: RT News

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