Greece debt crisis: IMF suggests debt relief as referendum campaign begins

The battle for Greek votes went into full swing today ahead of a crucial weekend referendum that could decide whether the country falls out of the euro, but the IMF suggests the next step might be negotiating debt relief, a key demand by Prime Minister Alexis Tsipras.

Greeks face massive uncertainty, while for many, particularly the elderly, the daily struggle is to get cash for living expenses.

Greece's creditors have halted any negotiations on a new financial rescue program until after the popular vote on whether to accept proposed reforms in exchange for bailout loans.

In a statement released Thursday, the International Monetary Fund said Greece is officially in arrears on its debt, but its policy is to work collaboratively with members to clear their arrears. Greece missed a $1.6-billion euro payment ($2.2 billion Cdn) on 21.2 billion euros ($29.5 billion) in total debt to the IMF.

The IMF said being in arrears means Greece can no longer borrow from the IMF. But an analysis created before Greece missed its payment deadline and released today suggested the country may need 50 billion euros and widespread debt relief over the next three years to help it turn around its economy.

Pointing to Greece's failure to reform its finances over the past five years, the IMF explained to European creditors that Greece may need a 20-year grace period on debt and said any bailout package would have to include debt relief, as well as a new reform package for the economy.

Ashoka Mody, a visiting professor in international economic policy at Princeton University, responded to the IMF study by saying debt relief should have been on the table from the start and the release of this report seems to indicate the IMF was not negotiating in good faith when it drew a hard line in debt talks.

Tsipras has staunchly advocated a No to the referendum, saying it would put the country in a stronger negotiating position with creditors. But European officials and the Greek opposition have warned such an outcome could be tantamount to a decision to leave the euro.

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Until then, the country remains in limbo, with banks mostly shut and strict cash withdrawal limits imposed until after the vote.

Crowds of elderly Greeks, some struggling with walking sticks or being held up by others, thronged the few banks opened to help pensioners without debit or credit cards withdraw at least some money.

The banks shut down on Monday to prevent remaining funds fleeing after Tsipras announced he was calling the referendum.

The European Central Bank continues to provide funding for Greek banks, hoping to keep Greece stable.

Greeks are now restricted to a daily withdrawals of 60 euros ($83 Cdn), although in practice this has become 50 euros ($70 Cdn) for many as large numbers of ATMs have run out of 20 euro notes.

Pensioners without bank cards are being allowed to withdraw a maximum 120 euros ($167 Cdn) for the week from open bank branches.

"All I know is that that we are all going crazy here," said Anisia Kaklamanou, one of those waiting to get into a bank in central Athens. "And I don't know what to do on Sunday: vote Yes, vote No. I don't know. All I know is that I have 120 euros to get by until whenever the banks open."

Markets dislike the uncertainty, but investors know they have to wait out the crisis. Europe's Stoxx index was down slightly on Thursday, but markets in London and Switzerland rose, while Toronto stocks rose on Thursday. 

The question on Sunday's ballot is whether they accept or reject a reform proposal made by creditors during negotiations last week.

With Tsipras stepping up the No campaign in a televised address, there are signs the vote is too close to call. A euroday survey of Greek voters showed 47 per cent would vote Yes to accepting EU terms, while only 43 per cent leaned toward No.

And there are arguments over whether Greece can even afford its referendum, with ballots and election monitors projected to cost at least 20 million euros ($28 million Cdn) and many Greeks, who are registered to vote in their hometowns, unable to travel home to vote because of travel restrictions.

Election rallies set for Friday may help sway the poll.

Meanwhile, Tsipras's party Syriza is appealing to the country's media watchdog to get private TV and radio stations to stop from what it called an "incomprehensible and unprecedented" campaign in favor of a Yes vote.

No talks until after vote

Europe's last proposal is no longer on the table. It was amended later in the week and has now been rendered moot by the fact that Greece's international bailout expired Tuesday.

The country is now seeking a different deal with its European creditors. But European officials have said they cannot negotiate with Athens until after Sunday's vote.

The head of the eurozone finance ministers' group, Jeroen Dijsselbloem, says it will be "incredibly difficult" to build a new bailout package for Greece if the country votes No in Sunday's referendum.

He raised questions about the new government's ability to continue talks in such a case and rejected the Greek government's argument that it might get a stronger bargaining position in case of a No vote.

"That suggestion is simply wrong," Dijsselbloem told lawmakers in the Netherlands.

Some European officials have said the Greek referendum amounts to a vote on whether to stay in the euro. The Greek government says that is merely an attempt to terrorize the people into voting in favour of destructive austerity policies.

Many Greeks say they will be casting their ballots to end the budget cuts and tax increases imposed in return for bailout loans from other eurozone countries and the IMF.

"We've been going through this crisis over the last five years and we had nothing to eat, our pensions and our wages have been slashed and some made a profit off us," said pensioner Koula Makri in a bank queue.

She said Tsipras took too long to shut down the banks. "I'm in total agreement with [banks] closing. The queues are nothing next to all the suicides, the soup kitchens and the homeless on the streets of Athens."

Vow to resign

Greek Finance Minister Yanis Varoufakis told Bloomberg TV he would resign in case of a Yes vote.

French Finance Minister Michel Sapin said Europe remains committed to avoiding "catastrophe" for Greece and keeping it in the eurozone.

"The exit of Greece from the eurozone is not desirable, nor envisaged," Sapin said on France's iTele television Thursday.

If voters reject international bailout terms in Sunday's vote, then "we are entering in an unknown zone, an economic slide," Sapin warned.

Sapin had been pushing for an agreement with Greece before Sunday, but after a fruitless meeting of European finance ministers Wednesday, he conceded there was no point negotiating until after the vote.

He said he and other European finance ministers "tried until the last minute to find an accord, until the Greek prime minister said No.

European officials say Greece walked out of negotiations last week when the two sides were relatively close to a deal. Varoufakis said the main disagreement between the two sides was the notion of easing the terms on Greece's debt.

He told Bloomberg TV "I prefer to cut my arm off" than sign a rescue deal that does not include a debt relief provision.

Business associations and the country's largest labor union urged the government to cancel the referendum, while two private citizens have appealed to the Council of State, the country's highest court, to rule the vote unconstitutional.

The Council of Europe — an independent body with 47 member states that monitors elections and human rights — told The Associated Press the referendum would fall short of its internationally accepted recommendations, with the time allowed too short and the question put the people not clear.

In a sign of serious financial deterioration, Greece suffered another sovereign downgrade Wednesday night, the fourth this week. Moody's slashed the country's rating from Caa2 to Caa3, or just above default.