By ELENA BECATOROS
ATHENS, Greece (AP) _ Greece is out of cash to repay debts due as soon as next week.
The country and its creditors _ other eurozone countries and the International Monetary Fund _ have been locked in negotiations for months on what reforms the southern European country needs to take to get the final batch of loans from its international bailout.
Greece’s government came to power in January on a promise to not make any more belt-tightening reforms, arguing they risk hurting the economy even more.
Without a deal to get more loans, Greece could be unable to repay a series of loans to the IMF in June, the first of which is due on the 5th. Missing those payments could destabilize the country’s financial system and eventually push it out of the 19-country eurozone, a step that could shake the currency union and the global economy.
Here’s a look at the situation.
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WHAT IS BEING NEGOTIATED?
The talks now are about releasing the last 7.2 billion euro ($8 billion) loan out of Greece’s overall 240 billion euro bailout program. Since Greece’s rescue program started in May 2010, money has been disbursed in installments, with debt inspectors from the IMF, European Central Bank and European Commission reviewing the country’s progress in reforms each time. Many of the reviews have run beyond their scheduled time, however, as creditors and successive Greek governments argued over the measures. This particular installment was supposed to have been disbursed last year.
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WHY IS THIS SO URGENT?
Greece needs the money to repay its debts, many of which are repayments of the initial bailout loans. The country cannot borrow on international bond markets, like most countries, because investors are wary and demanding painfully high interest rates.
Greece has a heavy debt repayment schedule in the next three months, with 1.6 billion euros due to the IMF in June alone, with just over 300 million euros due June 5.
But having received no significant rescue loans since last August, it is now struggling to make ends meet by scraping together any cash it can find. The government recently ordered state enterprises, including kindergartens, municipalities, museums and embassies abroad, to transfer their reserve funds into a Bank of Greece account where they can be used by the state.
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WHAT IF GREECE DOESN’T PAY THE IMF ON JUNE 5?
Missing an IMF repayment doesn’t automatically mean Greece is in default. The IMF’s rules say that would only be declared once a payment is one month overdue.
But failing to repay its debts could rock the country’s markets and further hammer whatever confidence was left among investors and Greeks. Greece could have to put restrictions on money transfers and withdrawals to prevent panicked depositors from withdrawing their money in droves and bringing down the banking system. If, under such a scenario, Greece doesn’t get any more help from its creditors, it could have to eventually abandon the euro so that it can print its own money and get its financial system going again.
So far, the government’s has said it intends to honor all its domestic and international financial commitments. But some officials say it would need a bailout deal to be able to pay the IMF on June 5.
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IF GREECE GETS THE 7.2 BILLION, HOW LONG WILL IT LAST?
Not more than a few months.
Beyond the 1.6 billion euros it owes the IMF in June, it owes a total of 6 billion euros to creditors in July, and another 3 billion euros to the ECB in August, according to Angus Campbell, senior analyst at FXPro. “This is going to be a long drawn out summer,’’ he said.
This year Greece faces massive debt repayments _ the most it has to deal with in a single year for the next four decades. The total amount for 2015, including treasury bills, reaches a total of about 30 billion euros, small amounts of which have already been repaid.
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WHAT HAPPENS WHEN THAT MONEY RUNS OUT?
It is almost certain that Greece will need more financial help once the 7.2 billion euros are paid. What that will be is a matter of contention and speculation. Greece had long called for debt forgiveness for at least part of what it owes. In 2012, Greece restructured the debt held by private investors, with bondholders _ including many Greek pension funds _ seeing their holdings lose about three quarters of their value.
But talk of a third bailout for Greece is unpopular in Europe, where states have sunk billions of euros into the country in the form of cheap bailout loans. Countries like Spain, which have gone through economic trouble of their own, are loathe to write off billions in loans they gave to Greece.
Greece argues it doesn’t want a third package of bailout loans but wants to discuss a “growth pact’’ that would see the country’s economy return to growth and Greece stand on its own two feet again.
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WHAT ARE THE STICKING POINTS IN THE TALKS?
The sticking points in the current negotiations appear to include labor issues, with Athens insisting it will not cut salaries and pensions any further and creditors saying it must reform its labor market. Another bone of contention seems to be how much of a primary surplus _ the budget balance without debt repayments _ Greece must produce in the next few years.
Greece also says it wants a deal on the 7.2 billion euros to be tied to a deal to help it financially after that money runs out.
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