By Ian Talley
WASHINGTON--Greece will immediately be in arrears to the International Monetary Fund if it fails to make a billion debt repayment due June 30, an IMF spokesman said Thursday as bailout talks remained gridlocked.
IMF Managing Director Christine Lagarde would notify the fund's executive board promptly of any nonpayment, said spokesman Gerry Rice, an act that could trigger cross-default provisions in eurozone bailout loans issued to Greece.
The comments draw a hard line for a potential Greek default without a deal by Tuesday, increasing the pressure on Athens and its creditors to reach a deal. Greek officials have said they can't pay the fund without a deal, needing additional emergency financing from its creditors to cover upcoming bills to the IMF, the European Central Bank and even its own domestic institutions.
The IMF's comments are also are likely to dispel perceptions by some in the markets that a Greek default to the IMF wouldn't immediately precipitate financial turmoil. The IMF's official arrears policy allows the managing director to take a month before reporting the arrears to the board.
But, "Given the relevance and visibility of this case...we expect the managing director would notify the board promptly," Mr. Rice said.
The eurozone has some flexibility in its bailout loans on whether to trigger a cross-default. The provisions say the eurozone "may" declare Greece in violation of its bailout terms if Athens is in arrears to the fund. Still, it gives European authorities leverage to further ratchet up the tension on Athens to act.
Although talks have made some headway in recent days, the distance between Greece and its creditors on a bailout agreement is still fueling fears that the country could default, and even risks an exit from the eurozone. Besides pushing Greece's economic and financial crisis to a new level, failure to reach a deal could also spark selloffs in other euro markets and cause political trouble elsewhere in the currency union.
Mr. Rice also said even though Greece and its creditors appeared to be closing in on a bailout deal as the deadline approached, the IMF wouldn't spare the country a few more days to repay the fund.
"As a matter of long-standing policy, the fund does not extend any deadlines," Mr. Rice said.
The IMF's chief economist said last week that any credible deal wouldn't only require Greece to overhaul its finances and economy, but also "European creditors would have to agree to significant additional financing, and to debt relief sufficient to maintain debt sustainability."
Still, while the IMF is pressuring Athens to agree to such reforms, the emergency lender doesn't appear to be applying the same priority for action by Greece's eurozone creditors--some of the fund's biggest shareholders--to make concessions.
"First and foremost we need to see the reforms agreed and implemented," he said. "Then, on the other side, we need to have the requisite financing and debt-sustainability issues addressed."
It is unclear whether Germany and other fiscal hawks in the eurozone are willing to offer Greece debt relief, or whether the IMF can encourage the currency union to make sufficient cuts to the country's debt burden.
IMF officials have said the eurozone may only need to extend the maturity of the country's debt and reduce the interest rate as debt relief.
But many economists, including former senior IMF staff, say that the only way to truly make Greece's debt burden credibly sustainable is for the eurozone to write down the value of their loans to the country. Eurozone governments--and their taxpayers--would take a loss on their bonds under such a debt restructuring, but they would also help restore a eurozone member state back to health.