Gold News Monitor originally sent to subscribers on May 13, 2015, 10:24 AM.
On Monday, Greece repaid a €750 million loan installment to the IMF. How does it affect the Greek debt crisis and what does it mean for the gold market?
The IMF payment was made a day before it was due and calmed the fears of a Greek default. However, this is not the end of the crisis. Why? Well, Greece tapped emergency reserves in its holding account at the International Monetary Fund. One would maliciously say that Greece borrowed IMF funds to pay the IMF, however, it would be probably too simplistic a statement. Greece drew on €650 million reserves (each IMF member has such reserves) from the IMF denominated in Special Drawing Rights (a basket of international currencies). It was done with the IMF’s approval and the holding account must be replenished within one month.
Therefore, using up the IMF reserves helped to avoid default, but is showed how dire the Greece’s financial situation is. Greece again did not solve its problems in a meaningful way, but only bought a few weeks to raise needed funds somehow. To be more precise, Greeks hope that an agreement for disbursement of the €7.2 billion left in its current bailout funds, will be reached by the end of this month, so the country can manage to replenish its holding account reserves.
However, the Monday Eurogroup meeting ended without any agreement between Greece and its creditors. Practically only the negotiations’ tone was improved, but not their substance. Therefore, the liquidity situation is terribly urgent. The country is running out of its cash reserves and will be able to pay salaries and pensions in May only if pension funds and municipalities transfer more of their cash reserves. The government wanted to raise about €2.5 billion thanks to a decree requiring local governments and other public entities to transfer their cash reserves to the central bank; however Athens gathered only €600 million, as mayors opposed to this law. The situation is really dire if even local governments do not believe in Athens’s solvency and do not want transfer any money to this economic black hole.
According to the Spanish newspaper El Mundo, even the IMF, i.e. the international lender of last resort, does not want to take part in the next bailout of Greece, after the current program ends in June, while The Wall Street Journal reported that the IMF is preparing a plan B, i.e. is working with Greece’s neighbors on contingency plans for a Greek default.
To sum up, Greece managed to repay a €750 million loan installment to the IMF, however, only due to tapping emergency reserves in its holding account at the IMF. This means that the Greece’s fiscal situation is aggravating as the government is running out of cash and desperately buying time. The rising concerns about Greece should increase the safe-haven demand for the yellow metal and be supportive for the gold prices.
Thank you.
Arkadiusz Sieron
Sunshine Profits‘ Gold News Monitor and Market Overview Editor
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