Greece faces June 5 default without bailout deal

ATHENS, Greece (AP) — Greece will not be able to repay a loan to the International Monetary Fund early next month unless a deal is reached with its creditors to unblock bailout funds, the governing party’s parliament spokesman said Wednesday.

Nikos Filis said the government would give priority to the payment of salaries, pensions and the general running costs of the state rather than the IMF repayment on June 5.

“No country can repay its debts with only the money from its budget,” he told Ant1 television. “We don’t have it to repay it, and it’s a subject of the discussions.”

Greece’s new government has been struggling for four months to agree on reforms that creditors require in return for the disbursement of the remaining 7.2 billion euros ($8 billion) of the country’s bailout program.

Locked out of the international bond market by prohibitively high interest rates, Greece relies on the bailout funds to service its debts and avoid default.

“Now is the hour of truth,” Filis said. He added that if there is no agreement by June 5, Greece will not be able to repay the 303 million euros due to the IMF that day.

In recent weeks, Greece has managed to repay debts by scraping together money from state enterprises’ reserve funds, including schools, cultural centers and embassies abroad. But those funds will not be enough to tide the country over through the summer, when it faces repayments of several billion euros.

The liquidity crunch has affected the country’s banking sector, with the uncertainty leading to a steady stream of deposits being withdrawn.

The Moody’s credit ratings agency said its outlook for the Greek banking system was negative, “primarily reflecting the acute deterioration in Greek banks’ funding and liquidity.”

It noted that more than 30 billion euros had been withdrawn from the country’s banks since December, increasing reliance on central bank funding.

Prime Minister Alexis Tsipras’ radical left Syriza party won elections in January on promises to repeal deeply resented budget austerity measures that accompanied Greece’s two international bailouts, totaling 240 billion euros since May 2010.

But his government has run into trouble in negotiations with creditors at the IMF, other eurozone countries and the European Central Bank, with the lenders insisting more reforms must be implemented to ensure the country’s economy can become sustainable.

Late Monday, Finance Minister Yanis Varoufakis said a deal could be reached with lenders within a week, but European officials have said progress remains slow.

Tsipras has also faced dissent within his own party, with some members saying Tuesday that lenders were trying to force the government to abandon pre-election promises, and advocating the government make clear it intends to delay repayments.

On Wednesday, doctors, nurses and ambulance staff from state-run hospitals and health centers started a 24-hour strike protesting understaffing and underfunding and demanding back pay.

Hospitals were functioning with emergency staff, while about 500 pensioners and striking medical workers demonstrated outside the health ministry.

The state hospital workers’ union said Greece’s national health service is “out of control due to underfunding and understaffing.” It said the course of the country’s negotiations with its creditors is not creating “the requirements to solve accumulated problems, and the situation is heading to a non-manageable level.”

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