The International Monetary Fund has threatened to suspend financial aid to Greece in July unless European leaders fill the 3.7 billion euro shortfall in the 172 billion euro Greece rescue program, reports Peter Spiegel of the Financial Times. The shortfall is a result of European central banks refusing to roll over 3.7 billion euro in Greek bonds they hold.
IMF officials stated that, unlike past slippages, Greece hasn't made any mistakes this time. It's all due to the national central banks in the Eurozone. IMF also emphasized that the privatization delays were due to outside pressures. People familiar with the matter said that most of the Eurozone central banks don't want to substitute maturing Greek bonds with new ones as that would be perceived as directly financing the Greece government.
The central banks' refusal has created problems for IMF which is one of the biggest financiers of the Greek bailout program. But its rules don't allow it to disburse bailout money if the government's plans aren't financed for at least 12 months. The recent shortfall means Greece is fully financed only until July 2014.
Greece Finance Minister to Meet With Troika
Dutch finance minister Jeroen Dijsselbloem, who is also the chief of a committee of Eurozone finance ministers, said Thursday that he requested Greek finance minister Yannis Stournaras to complete discussions with the "troika" by the end of next month to finalize the next payment and ward off a crisis. An early deal with the "troika" will enable IMF to release its next aid package before cutting off Greece at the end of July.
However, the financial troubles have come at a time when Greece is trapped into a political turmoil. The coalition government in the country is on the verge of collapse after prime minister Antonis Samaras decided to close down the state broadcaster.
The shortfall would still force Eurozone ministers to figure out alternative sources of funding. A short term alternative solution for Greece may be to defer the repayment of government arrears. But that will hurt economic recovery in the country. Greece has the option to issue additional short-term debts, but lenders have sought to curtail this.
The problems with the Greek bailout program also come at a time when Cyprus has requested to revise its 10 billion euro bailout program.