Greece has reached the deadline it couldn’t afford to miss — repaying the European Central Bank.
The country ordered payments on Monday totaling 6.8 billion euros ($7.4 billion) to the ECB, the International Monetary Fund and the Greek central bank, a Greek finance-ministry official said on condition of anonymity. The euro extended gains Monday after the news, before retreating.
“The issue of repayment to the ECB was pivotal, because failure to make the payment would have had a knock-on impact on the ECB’s willingness to continue providing Emergency Liquidity Assistance to the Greek banks,” said Ken Wattret, an economist at BNP Paribas SA in London. “As the realization dawned that Greece was facing a very disorderly, painful exit from the monetary union, the government stepped back from the brink.”
“All my evidence and information leads me to say we will be repaid”
Greek banks reopened on Monday, after three weeks of closure, though withdrawal limits and restrictions on transfers remain in place. While the country is seeing the first signs of stabilization, hurdles still loom with a parliamentary vote on its bailout on Wednesday and more aid talks ahead.
The Stoxx Europe 600 index rose 0.6 percent to 407.99 at 1:07 p.m. Frankfurt time. The euro was little changed at $1.0838.
Lawmakers must decide on a second package of prerequisites for further financial aid, including tax increases on farmers. Last week’s vote prompted a rebellion by some members of the Syriza party, forcing Tsipras to reshuffle his cabinet on Friday.
Monday’s payments comprise 4.2 billion euros in maturing debt and interest to the ECB, 2.05 billion euros to the IMF, and 470 million euros to the Bank of Greece, a second finance ministry official said.
An ECB spokeswoman declined to comment on whether payment was received by the institution. European Union law bans the central bank from financing governments, meaning a default would probably require it to pull support from Greek lenders, leaving an exit from the single currency all but assured.
As banks reopened, people in Athens lined up for basic services such as payment orders and check deposits. Branches can now replace the daily cash withdrawal limit of 60 euros with a weekly limit of 420 euros, though transfers abroad from Greek accounts are still banned. Greek financial markets remain closed, the country’s market regulator said in an e-mailed statement.
In the negotiations to grant Greece the funds to pay its debts, politicians cut it fine. Euro-area leaders agreed on a bailout package worth as much as 86 billion euros in an overnight summit that ended last Monday morning. The Greek parliament approved the austerity measures linked to the aid in the early hours of Thursday morning, and the currency bloc signed off on 7 billion euros of bridge financing the next day.
The idea that Greece might default “is off the table”
ECB President Mario Draghi signaled his approval on Thursday by persuading his Governing Council to increase the ELA that is keeping Greek lenders afloat.
The longer-term outlook for the nation’s ability to keep repaying its creditors remains unclear. With recession crippling the economy, the debt-to-gross domestic product ratio could rise toward 200 percent, according to an IMF forecast last week. By comparison, most advanced economies are well under 100 percent.
German Chancellor Angela Merkel told broadcaster ARD that she’s prepared to consider relief, though only after Greece successfully completes the first round of a new bailout. She ruled out a reduction in the nominal value of Greek debt.
A “classic haircut” isn’t possible because it would violate European law, Merkel said. “This cannot happen in a currency union,” she told ARD on Sunday . “You can have it outside a currency union, but you can’t have it in a currency union.”
In his press conference last week, Draghi said it is “uncontroversial that debt relief is necessary” for Greece, and that the most important question is what the best way to achieve that would be within the bloc’s existing rulebook.
IMF Managing Director Christine Lagarde said on France’s Europe1 radio on Friday that Greece’s aid deal is “categorically not” viable unless the burden is eased.
Valdis Dombrovskis, the European Commission vice president for euro policy, said in a Bloomberg interview on Friday that while a haircut has been rejected by the region’s governments, options such as lower interest rates or a maturity extension can still be discussed.
“The Greek crisis has clearly exposed that the monetary union has a lot of unfinished business,” Gianluca Salford and Malcolm Barr, analysts at JPMorgan Chase & Co. in London, said in a note. “The original idea of the euro area as a club of self-sufficient AAA countries based on the aspiration of debt-to-GDP ratios converging over time toward 60 percent never materialized.”