WASHINGTON -- If hard-line backers of austerity in Europe don't budge, Greece will have no choice but to default on its upcoming debt payments, Greek Finance Minister Yanis Varoufakis told The Huffington Post in an interview Thursday.
Varoufakis is in town for a meeting with President Barack Obama as negotiations with Greece's international creditors over the nation's debt, budget and labor market regulations reach a fever pitch. Since 2010, Greece has depended on international aid from two separate bailouts, worth a combined $254 billion. The country's main creditors are the so-called Troika, a trio of institutions consisting of the International Monetary Fund, the European Central Bank and the European Union.
All eyes in Europe and in financial markets around the world are on whether the lenders will compromise or Greece will cave. HuffPost asked Varoufakis, "If they stand firm, and say, no, the terms are the terms -- is there any option other than default in the next few weeks?"
"Let me be precise on this," Varoufakis said, "because these are problematic times and there a lot of people who will latch on to any word or phrase that they deem fit in order to make mischief. This is not a time to allow them to make mischief. The fact is that Greece is out of the markets and it has been redeeming its debts for the last few months using its own scarce liquidity."
"It can't go on," he continued. "If it could, then we wouldn't be a program country, right? So if our partners in the institutions say, 'No liquidity for you, no disbursements, no new contract,' then of course this is unsustainable, as it would be with any country that is in a kind of IMF program, a Troika program or ECB program."
In fact, Greece could make its debt payments even without new injections of capital, but that would require the government to default on its pension or wage obligations. Varoufakis' comments made clear that, given the choice between defaulting on the debt and defaulting on pension payments, the pensioners would be taken care of. His party, Syriza, was elected on a platform of anti-austerity.
Asked whether it would be possible for Greece to default and still stay on the euro, Varoufakis pointed out that the debt-ridden country had previously defaulted in 2012, suggesting that Greece may respond in the same way if it cannot reach a new deal with its creditors by April 24.
“It has already happened,” Varoufakis said. “In 2012, the Greek government defaulted on 100 billion euros of existing debt commitments.”
Standard & Poor’s, one of the world’s biggest ratings agencies, on Wednesday downgraded the country's credit rating -- already at junk-bond status -- which the agency says puts Greece at “substantial risk” of default. According to the data firm Markit, the country has a 77 percent chance of defaulting in the next five years.
IMF chief Christine Lagarde warned Greece on Thursday against asking to delay its repayments to the organization. Earlier this month, the Greek government paid the IMF an installment of $494 million, prompting protests in the country from those who oppose the repayments. Varoufakis and Lagarde met Thursday in Washington, ahead of the finance minister's meeting with Obama.
Varoufakis said any kind of default would not be “the right solution now.”
“It’s not something we’re working toward, it’s not something we’re planning for, it’s not something we’re wishing for,” he told HuffPost. “What we’re looking to do is to create a new contract between Greece and our global partners.”
As the country's cash coffers continue to drain, its government hopes to access the remaining funds in the bailout program, while the European Central Bank continues to demand greater austerity from an already ravaged Greece.
"We have an agreement, the twentieth of February arrangement, which very specifically states that a final review of the existing arrangements is going to be judged by the end of April," Varoufakis said. "We’re working very hard towards that and we have no doubt that Europe will find a way of creating common ground between the previous program -- that many of our partners insist upon, simply because it’s there, there’s a certain inertia -- and the new facts on the ground, our government's priorities, the demands of the macroeconomic reality that we’re facing."
On Friday, Varoufakis is meeting with Lee C. Buchheit, a partner with Cleary Gottlieb Steen & Hamilton, in New York. Buchheit specializes in helping nations restructure their debt in the event of a crisis or default.
"He was the one who was responsible for the restructure of 2012 under previous governments. He is still contracted to the Greek state," said Varoufakis, when asked about the meeting. "We shall speak to anyone with ideas as to how to effect this package that will help us grow and maximize the present value we can pay to our creditors."
Asked if there were any upsides to a default for Greece, such as improved cash flow, Varoufakis said no.
"There's no upsides to default," he said. "It's like me asking you, 'Are there any upsides to having an accident?' This would be an accident, it would not be something that we do by choice."
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