Fears of Greek Eurozone exit rise following IMF meeting

According to British newspaper The Guardian, the European Central Bank has raised the prospect of Greece exiting the eurozone after it said financial buffers were sufficient to prevent contagion to other weak economies in the currency union.

ECB president Mario Draghi said that funds were sufficient to cope should Athens default on its debts, but warned that Europe would be entering “uncharted waters” that made the outcome of a default uncertain.

The intervention comes weeks before the country is due to agree to a new rescue deal with its creditors, while negotiators in Brussels have become increasingly exasperated with the stance of the radical left Greek administration. They accuse the government of failing to present concrete proposals for reform to allow the release of vital bailout funds.

“The short-term danger of contagion [from a Greek exit] is difficult to assess, but we have enough buffers in place. And even though they were designed for different circumstances, they are sufficient. But we are entering uncharted waters,” Draghi said at the IMF’s spring meeting.

Draghi, met Greek finance minister Yanis Varoufakis in Washington for informal talks and said there had been progress in “formulating a well-functioning policy dialogue” between Greece and the troika of lenders – the EU commission, ECB and IMF. He further supported an earlier call from the IMF for EU negotiators to slim down their list of demands during debt talks with Greece amid fears that time is running out to reach a deal.

In a move seen widely as offering an olive branch to Greece, Poul Thomsen, head of the IMF’s European department, said the reforms being demanded from Athens in exchange for a vital €7.2bn (£5.2bn) in rescue funds should be simplified and slimmed down, but Draghi said the aim of talks was still to reach “a comprehensive package within which the policies can be monitored”.

The radical left Syriza administration has so far resisted demands that reforms should be monitored by Brussels and aid tied to detailed targets

The Guardian reports that last week the IMF rebuffed a call for a delay in debt payments due next month. Despite denials from the Greek finance ministry, it is understood that Varoufakis asked for a delay while talks continued. There are fears that in the next few weeks it could run out of money to pay welfare bills and public sector wages if it is forced make scheduled debt repayments.

Draghi said ECB funds would continue to be channelled to the Greek central bank to maintain the viability of the country’s banking sector, which has suffered a massive outflow of funds during the crisis.

Asked about the consequences of Greece defaulting on its loan repayments, he said: “I don’t want to even contemplate such an event because the Greek leaders have said they will always meet their commitments.”

Eurozone finance ministers have become increasingly frustrated at delays over a new package and many think a Greek exit is likely. More talks are due in the Latvian capital Riga next week at a eurozone finance ministers’ meeting. German finance minister Wolfgang Schäuble says agreement is unlikely.