Lagarde dashes Greek hopes on loan respite

Christine Lagarde, head of the International Monetary Fund, has dashed Greece's hopes of receiving grace periods on loans it is due to repay next month, saying that precedents were "not fxcountiollowed by very productive results".

Yields on Greek bonds soared on Thursday following the news of the IMF's stance - revealed by the Financial Times - with yields on the July 2017 bond rising 202 basis points to 26.2 per cent, the highest since the country's restructuring. Its 10-year bond yields climbed 70 basis points to 12.4 per cent.

The revelation that Greece had explored the possibility of a grace period highlighted the parlous state of its public finances and international uncertainty about whether it will default on a €747m payment to the IMF due on 12 May.

Speaking at the IMF's spring meetings in Washington, Ms Lagarde confirmed that she explained the fund's policy of refusing requests for a delay to Yanis Varoufakis, the Greek finance minister, after Athens made an informal approach earlier this month for more time to pay. He has denied he made such a request.

Ms Lagarde said her advice was for Athens to take on the "tedious" technical work of designing reforms to the Greek economy and a credible implementation plan rather than hope for a grand political bargain that will unlock €7.2bn of remaining loans from creditors.

Stability in the Greek economy, she said, "is not done by a political last-minute accord, it's done by looking at measures, committing to reforms, measuring what the outcome will be".

"Payment delays have not been granted by the board of the IMF in 30 years," said Ms Lagarde, when asked at a press conference about whether Greece could do such a thing. "We have been able to express and explain the policy of the IMF in terms of payment delays and give the precedents and history of that to Mr Varofakis," she added.

According to officials briefed on the talks by both sides, Athens was persuaded not to make a specific request for a delay to the Fund.

In a Brookings event in Washington on Thursday, Mr Varoufakis said Greece was willing to give ground in its negotiations, but added "we are going to compromise, compromise, compromise without being compromised."

Signing on the bottom line of the existing memorandum would be easy but the "wrong thing to do," he argued, saying he wanted to expunge the country's image as a "bottomless pit". Greece was not willing to sign up to another version of "extending and pretending" on its debts. <

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Mr Varoufakis added he had had an excellent conversation with Ms Lagarde and that there had been "no rebuff" by the IMF managing director.

Officials representing Greece's creditors are unsure whether Athens will be able to make the payments in May. Even if they do, they are certain that the matter will come to a head by June, before much larger payments on bonds held by the ECB start coming due.

Renewed fears of "Grexit" pushed European stocks down from Wednesday's 15-year highs, the pan-European FTSE Eurofirst 300 index sinking 0.9 per cent, its worst tumble in three weeks.

As Greek bond yields soared, investors continued to flock to the safety of core government debt with yields on German Bunds dipping to a fresh low of 0.073 per cent.

IMF officials have repeatedly said that a rescheduling of repayments can only come as part of a completely renegotiated new bailout programme. Were it to miss a payment, Greece would become the first developed economy to go into arrears at the Fund, something only countries such as Zaire and Zimbabwe have done in the past.

Eurozone creditors have refused to release the funds unless Athens comes up with a more complete list of economic reforms and a credible plan for implementation, but talks over what those reforms should include have stalled. EU officials have publicly said no deal is likely at the next meeting of eurozone finance ministers, scheduled for next week.

The European Central Bank, European Commission and IMF must reach a staff-level agreement with Greek authorities before finance ministers can sign off on a deal.

Even if negotiations go well and start again in earnest, EU officials are privately sceptical that the technical work needed to allow the money to be released will be complete by the eurogroup meeting of 11 May, the day before the IMF payment is due.

EU finance ministers now openly talk about the possibility that no deal is possible, which could lead to a Greek default and potentially an exit from the euro.

Olivier Blanchard, IMF chief economist, also highlighted the increasing possibility of Greece leaving the eurozone, saying this week that for the rest of the eurozone a Greek exit "would not be smooth sailing, but it could probably be done".

The brinkmanship is alarming the US. Jack Lew, US Treasury secretary said on Wednesday no one should imagine they could predict the consequences of a Greek exit from the euro. "It would not be a good thing in a world economy just recovering from a deep recession to have that kind of uncertainty introduced," he said.

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