Greece is drawing up drastic plans to nationalise the country’s banking system and introduce a parallelcurrency to pay bills unless the eurozone takes steps to defuse the simmering crisis and soften its demands.
Sources close to the ruling Syriza party said the government is determined to keep public services running and pay pensions as funds run critically low. It may be forced to take the unprecedented step of missing a payment to the International Monetary Fund next week.
Greece no longer has enough money to pay the IMF €458m on April 9 and also to cover payments for salaries and social security on April 14, unless the eurozone agrees to disburse the next tranche of its interim bail-out deal in time.
“We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer,” said a senior official.
“We may have to go into a silent arrears process with the IMF. This will cause a furore in the markets and means that the clock will start to tick much faster,” the source told The Telegraph.
Syriza’s radical-Left government would prefer to confine its dispute to EU creditors but the first payments to come due are owed to the IMF. While the party does not wish to trigger a formal IMF default, it increasingly views a slide into pre-default arrears as a necessary escalation in its showdown with Brussels and Frankfurt.
The view in Athens is that the EU creditor powers have yet to grasp that the political landscape has changed dramatically since the election of Syriza in January and that they will have to make real concessions if they wish to prevent a disastrous rupture of monetary union, an outcome they have ruled out repeatedly as unthinkable.
“They want to put us through the ritual of humiliation and force us into sequestration. They are trying to put us in a position where we either have to default to our own people or sign up to a deal that is politically toxic for us. If that is their objective, they will have to do it without us,” the source said.
Going into arrears at the IMF – even for a few days – is an extremely risky strategy. No developed country has ever defaulted to the Bretton Woods institutions. While there would be a grace period of six weeks before the IMF board declared Greece to be in technical default, the process could spin out of control at various stages.
Syriza sources say are they fully aware that a tough line with creditors risks setting off an unstoppable chain-reaction. They insist that they are willing to contemplate the worst rather than abandon their electoral pledges to the Greek people. An emergency fall-back plan is already in the works.
“We will shut down the banks and nationalise them, and then issue IOUs if we have to, and we all know what this means. What we will not do is become a protectorate of the EU,” said one source. It is well understood in Athens such action is tantamount to a return to the drachma, even though Syriza would rather reach an amicable accord within EMU.
Eurozone creditors may be willing to release enough funds to cover Greece’s government costs on April 14, but only if Syriza pays the IMF first. However, trust has already collapsed to the point where key ministers in Greece no longer believe the assurances from Brussels, fearing they may be lured into a trap. The mood has become poisonous.
“They want us to impose capital controls and cause a credit crunch, until the government becomes so unpopular that it falls,” said one official.
“They want make an example of us, and demonstrate that no government in the eurozone has a right to have mind of its own. They don’t believe that we will walk away, or that the Greek people will back us, and they are wrong on both counts,” he said.
Syriza is still hoping that German Chancellor Angela Merkel can defuse the crisis, deeming her a “real ally”, but fear that she will be confronted with a fait accompli beyond even her control.
Bank of America warned that a “critical sequence of events could unfold” once Greece misses a payment to the IMF. It would trigger a parallel default to the eurozone bail-out fund (EFSF) under the legal master agreement, and might force the EFSF to cancel its loan packages and demand immediate repayment. This in turn would trigger a default on Greek government bonds issued under the bail-out accord.
The situation is now critical. Even if Greece manages to cobble together enough money to cover the April deadline, it owes the IMF a further €200m on May 1 and €763m on May 12. A Greek official told EMU counterparts at a teleconference on Wednesday that the country has run out of money. “There is no way we can go beyond April 9,” the official reportedly said.
The drama comes after the creditors refused to rubber stamp Athens’ latest bid to unlock funds, raising objections over Syriza plans to boost union powers in collective bargaining and boost pensions for lower income groups.
Brussels continues to insist on more concrete pledges, despite receiving a 26-page list of reforms on Wednesday. Athens hopes to raise €6.1bn in 2015 by clamping down on fuel smuggling and tax evasion, introducing new levies on luxury goods, and reforming public procurement. It estimated funding needs at €19bn over the coming year, meaning that there will inevitably be fresh tensions over the summer even if there a deal on interim funds until June.
Former European Commission head Jose Manuel Barroso warned Greece that they have a moral obligation to other states, describing the demands for more time and money as “completely unacceptable”.
“We should remember that there are poorer countries that are lending money to Greece, so to propose a cut to their debt would be certain to receive a no from their partners,” he said.
Here’s what Greece owes to whom and when…