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July 21, 2015

Greece Repays the IMF and ECB

Despite months of concern, countless reports regarding the nation's unlikely possibility for making repayment, and an enormous drag on the economy of Europe, Greece has officially paid back the International Monetary Fund (IMF).

On Monday, the IMF released a statement via spokesman Gerry Rice saying, "I can confirm that Greece today repaid the totality of its arrears to the IMF, equivalent to SDR 1.6 billion (about EUR 2.0 billion). Greece is therefore no longer in arrears to the IMF." He added, "As we have said, the Fund stands ready to continue assisting Greece in its efforts to return to financial stability and growth."

Following the global recession in 2008, the Greek economy suffered more than many others. It availed itself of bailout funds provided by the IMF, yet struggled to make repayment. Greece officially fell into arrears with the IMF on June 30 after missing a 1.6 billion euro payment. This led to some surprise moves by the government to pass additional financial reform measures in order to qualify for additional bailout funds offered by Greece's European creditors. Unfortunately, those moves ultimately failed when put to a national referendum on July 5.

However, last week, the Greek parliament agreed to a deal with the nation's creditors that many considered much more onerous than the one that failed on referendum. Nevertheless, this deal did lead to the financing Greece needed in order to repay its IMF obligation and a 3.5 billion euro payment to the European Central Bank (ECB).

Unfortunately, the government's approval of the deal without the supporting referendum only allowed the nation to secure a portion of the bailout funds it requires. In total, Greece needs about 80 billion euros, and there is no clear way for the European nation to come to a comprehensive financing arrangement with its existing creditors.

According to Ian Bremmer of the Eurasia Group, the current Greek deal that allowed it to obtain the much-needed funds would be "incredibly hard to implement." Bremmer believes the IMF will not likely support an additional bailout for Greece.

Last week, the IMF issued a report saying Greece would need to restructure its debt; something the current bailout arrangement does not contemplate. Nevertheless, Greek banks reopened this week, capital controls remained in place (withdrawals are limited to 420 euros a week), but the Athens Stock Exchange remained closed. Thus, while still limping, the Greek economy appears to be heading in the right direction. Yet, it has a long way to go before they can say that they have started on the path to recovery.

Courtesy Economy Watch

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