Global Business

Greek Debt Default Looking More Likely

Weekend talks break down after after Greece claims creditors’ representatives had no authority to negotiate a deal.
Katie Kuehner-HebertJune 15, 2015

It’s looking more likely that Greece will default on repaying the 1.6 billion euros ($1.8 billion) owed to the International Monetary Fund at the end of this month.

According to The New York Times, weekend talks in Brussels broke down between Greek officials and the country’s European creditors, raising the real possibility of a debt default and of Greece becoming the first country to leave the eurozone.

Creditors have been trying to get Athens’ leftist government to retreat on its demands for easing the terms of its bailout program, and negotiations have focused on areas like setting the size of Greece’s primary budget surplus and overhauling the country’s pension system, the NYT said.

The latest discussions were called off late Sunday after Greek officials claimed the creditors’ representatives had no authority to negotiate any sort of deal.

“They wanted us to hit our targets by slashing pensions and increasing taxes,” a senior member of the Greek negotiating team told the NYT. “But they had no mandate to negotiate.”

The weekend talks were ahead of a meeting on Thursday of euro-area finance ministers, who must approve any deal before billions of euros in frozen aid payments are unlocked.

“Forging agreement is proving much more difficult than most expected,” said Mujtaba Rahman, the practice head for Europe at the Eurasia Group, a political risk consultancy.

“Unless Greek negotiators produce a credible set of reform proposals soon, this will amount to a spectacular miscalculation by Athens, resulting in default and capital controls in a matter of weeks,” he said.

If Greece does not receive additional bailout funds, it would be forced to raid state pension and municipal funds to make good on 1.2 billion euros ($1.36 billion) in pension and salary payments to public-sector workers, an unnamed source told the NYT.

The failed talks could also jeopardize the European Central Bank’s support for troubled Greek banks. “The president of the ECB, Mario Draghi, has said that he would cut off emergency aid to Greek banks if it became clear that there would be no agreement between Greece and its creditors,” the NYT wrote.

A crucial meeting of the ECB’s governing council is set for Wednesday.