Growing Rift Between Greece and IMF Chief

There's A Growing Rift Between Greece and Christine Lagarde

May 28, 2012

The Atlantic Wire - While it hasn't hit our Spat Watch level just yet, tensions between Greece and the current head of the International Monetary Fund, Christine Lagarde, are starting to heat up.

Things started on Saturday when Lagarde made some unsavory comments in an interview with the Guardian about Greece's tax-paying habits, or lack there-of. In the interview, Lagarde was asked about how she deals with suggesting Greek financial measures that might, "mean women won't have access to a midwife when they give birth, and patients won't get life-saving drugs, and the elderly will die alone for lack of care."

Lagarde said she, "thinks more of the little kids from a school in a little village in Niger who get teaching two hours a day, sharing one chair for three of them, and who are very keen to get an education," because, "I think they need even more help than the people in Athens."

Lagarde then chose to add,

"As far as Athens is concerned, I also think about all those people who are trying to escape tax all the time. All these people in Greece who are trying to escape tax."

The Guardian asked if she was saying, "you've had a nice time and now it's payback time," to the Greeks and Laraged responded, "Yeah."

The Guardian asked if she thinks about Greek children, who couldn't be held responsible, and Lagarde said,

"Well, hey, parents are responsible, right? So parents have to pay their tax."

As the New York Times' Harvey Morris points out, the Greeks found her remarks to be a little insulting. Commenters lit up Lagarde's Facebook page after the Guardian interview was released. Lagarde issued a statement via Facebook that attempted to soften her remarks in the Guardian interview. She wrote:

As I have said many times before, I am very sympathetic to the Greek people and the challenges they are facing. That's why the IMF is supporting Greece in its endeavor to overcome the current crisis and return to the path of economic growth, jobs and stability. An important part of this effort is that everyone should carry their fair share of the burden, especially the most privileged and especially in terms of paying their taxes. That is the point I was emphasizing when I spoke to the Guardian newspaper as part of a broader interview some time ago.

The post gained over 20,000 comments, many of them in Greek, many of them still angry with her. Greece still hasn't managed to form a government. We've prepared for what might happen if Greece leaves the Euro, and we've switched back to preparing for them to stay, but that plan could change again any minute.

Greece Pours $22.6 Billion Into Four Biggest Banks

May 28, 2012

Reuters - Greece handed 18 billion euros ($22.6 billion) to its four biggest banks on Monday, an official said, allowing the stricken lenders to regain access to European Central Bank funding.

The long-awaited injection — via bonds from the European Financial Stability Facility rescue fund — will boost the nearly depleted capital base of National Bank, Alpha, Eurobank and Piraeus Bank.

"The funds have been disbursed," an official at the Hellenic Financial Stability Facility, who declined to be named, told Reuters.

The HFSF was set up to funnel funds from Greece's bailout programme to recapitalise its tottering banks. The HFSF allocated 6.9 billion euros to National Bank, 1.9 billion to Alpha, 4.2 billion to Eurobank and 5 billion to Piraeus.

All four are scheduled to report first-quarter earnings this week.

The news came as two government officials told Reuters that near-bankrupt Greece could access 3 billion euros, left from its first bailout programme, to cover basic state payments if efforts to revive falling tax revenue fail.

"Our finance ministry efforts at this time are focused on boosting revenue," one official told Reuters. But he added that if these efforts failed they would "examine all alternatives, including the 3 billion euros from the first bailout."

Greek state coffers are on track for a more than 10 percent fall in revenue this month, a senior finance ministry official said last week. Officials had warned the state could run out of cash to pay pensions and salaries by end-June.

The 3 billion euros is held in an intermediate HFSF account.

Greece has been struggling through a fifth year of recession and political turmoil, triggered by an inconclusive vote this month that has fanned fears the country could be forced to leave the euro zone.

The country's struggling banks have been among those hit hardest by the uncertainty, with a rise in deposit outflows.

Huge writedowns from a landmark restructuring to cut Greece's debt nearly erased the capital base of its biggest four banks, which rely on the ECB and the Bank of Greece to meet their liquidity needs, after savers began pulling their cash out on fears that Greece could go bankrupt and out of the euro zone.

Last week the ECB stopped providing liquidity to some Greek banks because their capital base was depleted.

With access to wholesale funding markets shut on sovereign debt concerns, Greek banks have been borrowing from the ECB against collateral, and from the Greek central bank's more expensive emergency liquidity assistance (ELA) facility.

Bleeding deposits, the country's lenders have borrowed 73.4 billion euros from the ECB and 54 billion from the Bank of Greece via the ELA as of end-January.

Together, the sums translate to about 77 percent of the banking system's household and business deposits, which stood at about 165 billion euros at the end of March.

Funded by the euro zone and the IMF, the HFSF is due to inject up to 50 billion euros into the country's banks in return for shares which it hopes to sell some day. The funds are part of a second, 130-billion euro bailout Greece agreed this year with its euro zone partners and the IMF to stave off bankruptcy.

So far the HFSF has received 25 billion euros under the scheme and the 18 billion euros it disbursed on Monday is its largest payout to banks.

Key details of the recapitalisation plan for Greece's battered banking sector, including the mix of new shares and convertible bonds to be issued, and whether call options will be included as incentives, remain unclear.

That framework is expected to be finalised after a government is formed, following a June 17 election.