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IMF Placed Greece Among “Arrears”

by chaitanya ysvJuly 1, 2015

Greece, the weak link in the eurozone, is inching closer to defaulting on its debt. The country has been in a long standoff with its European creditors on the terms of a multibillion-dollar bailout. If the country goes bankrupt or decides to leave the 19-nation eurozone, the situation could create instability in the region and reverberate around the globe. Greece’s debt crisis began in 2010, when most international banks and foreign investors have sold their Greek bonds and other holdings, so they are no longer vulnerable to what happens in Greece.

The country missed a Tuesday deadline to repay roughly 1.6 billion euros, or $1.8 billion, to the International Monetary Fund.

Hours before the deadline for the payment, Prime Minister Alexis Tsipras asked the other nations that use the euro to provide another bailout, which would buy time for Athens to renegotiate its crippling debt load.

Greek crisis IMF

Chancellor Angela Merkel of Germany said earlier in the day that no deal with Mr. Tsipras’s government could be negotiated until after a Greek referendum scheduled for Sunday. Greek voters will be asked to accept or reject an offer made last week by the country’s creditors.

However, the International Monetary Fund did not use the term default after Greece missed its payment deadline. The fund instead placed the country in so-called arrears.

Credit-rating agencies will not consider Greece to be in default based on missing the I.M.F. payment, for the technical reason that the I.M.F. is not considered a commercial borrower. But the ratings agency Standard & Poor’s did say Tuesday that it would designate Greece as being in default if the country cannot make payments to private creditors, like €2 billion in Greek Treasury bills that are due on July 10.

Regardless of the country’s technical status, missing the payment will most likely prove to be a warning that Greece will probably be unable to meet its other obligations in coming weeks to its bond holders and to the European Central Bank. That might make the central bank less willing to continue emergency loans that have been propping up the Greek banking system for the past several weeks.

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