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Greece’s Battle with Europe’s Creditors

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George Osborne has warned that Greece’s battle with Europe’s creditors is nearing a “Crunch Point” and threatens to detonate a fresh Global Financial Crisis if mishandled over the next days and weeks. The Chancellor said the Escalating Crisis in Greece is now the biggest threat to the Worlds Economy, and has become a haunting theme for finance ministers and Central Bankers meeting at the International Monetary Fund in Washington this week.

“The mood is notably more gloomy than at the last International gathering, and it is now clear to me that a misstep or a miscalculation by either side could easily return European economies to the kind of perilous situation we saw three or four years ago,” he said. “The Crunch appears to be coming in May, and it would be a mistake to think that the U.K would be immune.

Of course, it would be the very worst moment for there to be any confusion about the direction of British of economic policy, or for a change of direction. We need resilience for moments like this,” he said. The warnings came as Greek finance minister Yanis Varoufakis prepared to meet U.S Treasury Secretary Jacob Lew to explore a possible 12th-hour compromise before Greece runs out of funds.

Mr Varoufakis spoke privately with President Barack Obama at the White House on Thursday night, pleading with the US leader to step up pressure on Europe’s creditors for more flexibility. The Left-wing Syriza government in Athens no longer has enough money to meet the next €1.7bn bill for salaries and pensions later this month, and faces an almost €1bn IMF bill in early May.

Greece is scrambling to find bridging finance anywhere it can, eyeing pensions and the holdings of state-owned companies at the Central Bank. Mr Varoufakis said in Washington that matters are fast coming to a head. “The fact is that Greece is out of the markets and it has been redeeming its Debts for the last few months using its own scarce liquidity. It can’t go on,” he said.

He told a group of economists at the Brookings Institution that Greece was the victim of a deliberate policy of “liquidity asphyxiation” by powerful forces in the Eurozone, intent on bringing Syriza to its knees. The Brussels Group of lenders will now continue talks with Athens on Saturday. But Jeroen Dijsselbloem, head of the Euro’s finance ministers said the Leftist government had shown naivety in their negotiations with creditors.

“They are a Government experienced in academics but not in politics,” Mr Dijsselbloem told an audience at the Peterson Institute in Washington. “If you want a solution, a little less media exposure and a little more behind closed doors is needed.” Christine Lagarde, the IMF’s managing-director, said no developed country had ever missed payments to the Fund, adding that it would morally indefensible for a relatively rich nation such as Greece to Default to the International community.

Mr Osborne appeared to blame the eurozone authorities and creditors as much as Greece for the failure to end the impasse, a view shared by the White House and the US Treasury. He also confirmed that the IMF is not viewed as the main antagonist by Greece and that Syriza is more likely to target any default against EMU creditors, if it can get over the immediate hurdle of payments to the Fund.

“I am confident that as a highest-tier creditor to Greece, the IMF is better protected than some of the other potential creditors to Greece,” he said. “The IMF exists to help economies in trouble. Frankly, most of the challenges do not lie in the relationship between the IMF and Greece, but in the relationship between the eurozone and Greece.” Syriza officials say privately that they hope to avert a disastrous clash with the Fund, regarding the European Central Bank as the real enemy.

Following an hour-long meeting with ECB president Mario Draghi on Friday, Mr Varoufakis said the Italian wanted “a swift resolution soon to help Greece grow”. However, some view a lapse into temporary arrears on the next IMF payment as a way of sending a powerful warning shot for the whole machinery of creditor power known as the Troika. Mr Varoufakis would be loathe to do this but Greek premier Alexis Tsipras is less attached to the IMF club.

Author: Ambrose Evans-Pritchard, The Telegraph

(Reuters) – The European Central Bank has analyzed a scenario in which Greece runs out of money and starts paying civil servants with IOUs, creating a virtual Second Currency within the Euro bloc, people with knowledge of the exercise told Reuters. Greece is close to having to repay the International Monetary Fund about 1 billion euros in May and officials at the ECB are growing concerned.

Although the Greek government has repeatedly said that it wants to honor its Debts, officials at the ECB are considering the possibility that it may not, in work undertaken by the so-called adverse scenarios group. Any default by Greece would force the ECB to act and possibly restrict Greek Banks’ crucial access to emergency liquidity funding.

Officials fear however that such action could push cash-strapped Athens into paying civil servants in IOUs in order to avoid using up Scarce Euros. “The fact is we are not seeing any progress… So we have to look at these scenarios,” said one person with knowledge of the matter. One Greek government official, who declined to be named, said there was no need to examine such a scenario because Athens was optimistic it would reach a deal with its international lenders by the end of the month.

Greece has dismissed a recent report suggesting it would need to tap all its remaining cash reserves across the public sector, a total of 2 billion Euros, to pay civil service wages and pensions at the end of the month.

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