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Greece seeks new EU loans after IMF debt default

01 July 2015, 08:30 CET
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Greece seeks new EU loans after IMF debt default

Greek Parliament - Photo A.Savin

(BRUSSELS) - The European Union will decide Wednesday whether to grant Greece a last-minute bailout package to avoid pushing it further towards an exit from the eurozone.

Greece on Tuesday failed to make a 1.5 billion euro ($1.7 billion) payment to the International Monetary Fund, becoming the first industrialised country to do so.

On the same day, the international bailout keeping its economy afloat formally expired.

The missed payment underlined the failure of more than five months of wrangling between Greece's radical left government and its creditors to reshape its bailout and prevent it dropping out of the eurozone.

But finance ministers from the eurozone were set to resume talks in Brussels on Wednesday after under-pressure Athens asked for a new two-year aid plan -- the third in five years.

Greece has requested a further 29.1 billion euros from the European Stability Mechanism (ESM), to "fully cover its financing needs and the simultaneous restructuring of debt," for the next two years, according to the office of Prime Minister Alexis Tsipras.

Greek officials have indicated they would be willing to suspend a referendum planned for Sunday on the reforms demanded by its creditors if Wednesday's talks produce an eleventh-hour agreement on the new funding request.

"There was a willingness to take a look at the question in the referendum or update the referendum or suspend it," an EU source told AFP after talks Tuesday between Greek Finance Minister Yanis Varoufakis and his eurozone counterparts.

"All that depended on the signal the Eurogroup would give to this new proposal," the source added.

Ratings agencies cut their ratings on Greece's debt, predicting it will return to recession this year.

In Athens, around 20,000 people braved torrential rain late Tuesday to turn out to show their support for a bailout deal.

Banks in Greece will be closed all week amid the spiralling debt crisis, but around a thousand branches will open on Wednesday to allow the elderly to receive pensions payments.

For everyone else, there was no choice but to queue -- sometimes for hours -- at cash machines to withdraw a maximum of 60 euros a day.

The ongoing uncertainty hit European stocks and the single currency on Tuesday.

But in Asian trade on Wednesday, the euro held steady buying $1.1136 compared to $1.1139 in New York late Tuesday.

The European Central Bank's governing council will also meet on Wednesday to discuss the crisis in Greece.

It was the ECB's decision on Sunday to refuse to increase emergency funding for Greek banks that pushed Athens to close lenders and impose the capital controls.

The ECB is thought likely to stick with its current stance on Greek banks but could take measures to prevent contagion in other eurozone markets.

Greece has entered uncharted waters without international aid for the first time in five years, sparking fears of a chaotic eurozone exit which could have untold repercussions for global markets and the EU.

- Wealthiest IMF default -

An IMF spokesman in Washington confirmed the payment due by 2200 GMT Tuesday had "not been received," making Greece the wealthiest ever to default to the Washington-based global lender.

"We have informed our executive board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared," Gerry Rice said in a statement.

The IMF is now considering extending Greece's payment deadline -- something it has only done twice before in 1982 for Nicaragua and Guyana -- giving it the power to ease pressure on Athens as it starts fresh talks with the EU.

Tsipras plunged the protracted discussions into chaos over the weekend when he announced the referendum, urging Greeks to vote against the pension cuts and sales-tax increases demanded by its creditors

The request by Athens Tuesday for a new loan followed European Commission chief Jean-Claude Juncker's attempt to clinch a solution before Sunday's referendum which would involve accepting the EU-IMF reform proposals.

Chancellor Angela Merkel of Germany stuck to Berlin's hard line when she said she would not discuss any new Greek request until after the referendum.

"Before the referendum, Germany can't negotiate a new request" for assistance, Merkel was quoted as saying by a lawmaker from her conservative Christian Democrats.

In Athens' Syntagma square, in front of the parliament, protesters called for a "Yes" vote in the bailout referendum, a day after a rival rally backing Tsipras's "No" stance on Monday.

Protestors carried banners featuring slogans such as "Greece is Europe" while many of the crowd chanted for Tsipras to resign.

Vassiliki Salaka, a lawyer at the demonstration, said those in charge of Greece now were "incompetent, they lack organisation, they don't know what they want".

But many other Greeks also back the government's defiant stance since it was elected in January, blaming the nation's creditors for forcing Greece into years of painful recession by demanding tough austerity cuts.


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