Decisions & Consequences
Greek Shares Slip as Athens Misses IMF Payment

In what could prove to be a fateful step, the Greek government yesterday decided to miss its scheduled payment of €300 million to the IMF, due today. Athens availed itself of a loophole, last used by Zambia in the 1980s, to bundle all of a month’s payments into one larger one due by the end of the month, officially citing ‘administrative difficulties’ as the excuse. IMF officials and observers believe that the decision was political rather than economic—the money is not quite yet on the verge of running out. Rather, this was an effort by Greek authorities to signal their dissatisfaction with the final take-it-or-leave-it offer proposed by Europe’s creditors earlier in the week.

Nevertheless, the move was unexpected—both Prime Minister Alexis Tsipras and IMF head Christine Lagarde had signaled as late as yesterday that they expected the payment to go through. “[The move] unnecessarily raises the stakes and will further undermine the goodwill of Greece’s creditors,” an analyst at Eurasia Group told the Financial Times.

And markets don’t like the unexpected:

Greek shares were on track for their biggest one-day drop in a month, with the Athens General index falling 3.8 per cent in morning trading. Greek bank stocks led the fall, with the country’s largest lender, National Bank of Greece, down 9 per cent; Piraeus Bank down 13 per cent, and Alpha Bank down 6 per cent.

Greece’s banking system has seen sharp withdrawals by depositors in recent weeks, renewing fears that the uncertainty over the country’s solvency could spark a full-scale bank run. In April, companies and households pulled out €4.9bn from their accounts, capping a five-month plunge in which deposits have dropped more than 12 per cent.

Equally worryingly for bailout lenders, the Greek government’s borrowing costs also rose. The yield on Greece’s benchmark 10-year bond was up almost 60 basis points, but at 11.5 per cent remained significantly lower than the highs of more than 13 per cent seen in April.

A successful conclusion of Greece’s bailout would require Athens to return to the private capital markets, but such high borrowing costs would make such a return prohibitively expensive.

If Greek authorities just wanted to rattle their chains a bit, they’ve certainly succeeded. But the costs of this stunt could prove to be higher than they anticipated. After months of brinksmanship and feints, we’re legitimately in uncharted territory today. Events may start taking on a logic of their own.

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