Greece's game of chicken with its bailout creditors just got very risky.
On Thursday, the International Monetary Fund team that was negotiating with Greece in Brussels hit the road after failing to make any progress on a new loan package as Greece runs desperately short of cash. While the move in no way meant that the IMF would never return to the negotiating table, it piled more pressure on Greece to sign a "take-it-or-leave-it" deal that would offer few of the concessions demanded by Greece.
"The ball is very much in Greece's court," IMF spokesman Gerry Rice told the media in a briefing in Washington. "There are major differences between us in most key areas. There has been no progress in narrowing these differences recently."
The departure of the IMF team was a signal that Greece's trio of creditors, which includes the European Union and the European Central Bank, are completely exasperated with Greece's negotiating stance. As the IMF team was pulling out, the European Council, the EU's executive arm, warned Greece that it was almost out of time and out of luck.
"There is no more time for gambling," EC president Donald Tusk said at a news conference after a EU-Latin America summit. "The day is coming, I'm afraid, that someone says that the game is over. It is very obvious that we need decisions, not negotiations."
Oddly, the warnings from the IMF and the EU came when the Greek market surged on investor speculation that the compromise deal was close, one that would release €7.2-billion ($10-billion) in funds remaining from the existing bailout, which expires at the end of this month. The Athens market was up 8 per cent. The warnings also came as European Commission President Jean-Claude Juncker called his Thursday meeting with Greek Prime Minister Alexis Tsipras "important, interesting and friendly." The IMF, meanwhile, said IMF managing director Christine Lagarde will attend the euro zone finance ministers meeting on June 18, by which time Greece's creditors hope to have a deal in place.
While the two sides are thought to be close on some issues, including the primary surplus – the budget surplus after debt payments are stripped out – there were enough wide gaps elsewhere, including the crucial issue of pension reform, to convince the creditors that no breakthrough was imminent.
Germany, whose impatience with Greece has been elevated to the point that German Finance Minister Wolfgang Schaeuble has said he would consider Greece's exit from the euro zone, joined the IMF and the EU in warning Greece that it had essentially run out of time to strike a deal. On Thursday, Jens Weidmann, president of Germany's central bank, said the "risk of [Greece's] insolvency is increasing by the day." At the same time, German Chancellor Angela Merkel told the Greek government to "work emphatically at full steam" to get a deal in place quickly.
The removal of the IMF negotiating team from Brussels came a week after Greece told the IMF that it would delay making a €300-million debt payment that was due on June 5. While Greece said it would roll the payment and three others in June totalling €1.5-billion into one lump sum that would be paid at the end of the month, the missing June 5 payment surprised and embarrassed Ms. Lagarde. She had said that she was "confident" the payment would be made on time.
Mr. Rice, the IMF spokesman, said Greece's pension reform was a key sticking point in the negotiations. "Pensions and wages account for 80 per cent of Greece's total primary spending," he said. "It is not possible for Greece to achieve its medium-term fiscal targets without reforms, and especially pensions. It has been acknowledged by all sides that the Greek pension system is unsustainable."
Mr. Tsipras and his radical left Syriza government, which was elected in January on an anti-austerity pledge, has fiercely resisted pension reform, especially the creditors' demands that it eliminate an income top-up for the poorest pensioners. On Wednesday, a Greek court ruled that the government could reverse cuts to pensions it made in 2012 because the reductions deprived pensioners of the right to a decent life.
Mr. Tsipras is taking a hard stance with creditors, one that could backfire spectacularly, not just because his election pledge called for an end to austerity, but because he needs to avoid a revolt within his own party. Several members of Syriza, including Energy Minister Panagiotis Lafazanis, are resisting any compromise deal with creditors. Mr. Lafazanis has urged Greece to resist a "Germanized Europe" and has said that privatizations in strategic areas demanded by Greece's creditors "can't and won't happen."
The government of Mr. Tsipras might also risk losing the support of Finance Minister Yanis Varoufakis, who has described himself as a libertarian Marxist and whose abrasive, direct manner did not go over well in Brussels. Mr. Tsipras removed Mr. Varoufakis from the front-line negotiating team. Rumours have persisted that he may quit the government.