Greece is heading toward another critical deadline on June 5 by which time it is expected to make a repayment of €300 million, the first of the four payments totaling $1.76 billion to be made to the International Monetary Fund (IMF). However, Interior Minister Nikos Voutsis has said that the payment cannot be made as the country is out of cash.
Recently, the European Central Bank (ECB) raised the ceiling on Emergency Liquid Assistance (ELA) to 80.2 billion euros, but compared to previous ECB measures it is only a small increase.
As talks on a cash-for-reform deal continue to lag, Greece is continues to lose liquidity and its economy is diving deeper into recession. However, Greek Finance Minister stated that a deal will be sealed by the June 5.
If Greece fails to unlock the final installment of the €245 billion ($272 billion) bailout before the program expires (within 6 weeks) the emergency funds will elapse, pushing the country into a default.
Consequences of missing the upcoming payment
Failure to service official loans doesn't necessarily trigger an immediate default as the IMF gives debtors a 1 month “grace period” before notifying its board that a payment has not been made. This also gives Greece some extra time to strike a deal with its international lenders if it hasn't done so by then.
However, failure to make a payment does mean that a written statement is noted in the so called Master Financial Assistance Facility Agreement, the extension deal signed back in February. According to the agreement, if Greece fails to make a payment to the IMF, the European Union's emergency cash lifeline and the European Financial Stability Fund (EFSF) has the right to immediately demand the repayment of all outstanding loans made to the country (close to €140 billion euros).
Another crucial payment Greece is expected to make is on June 20 where a coupon payment of about €194 million for that month is expected to be paid. Its €3.5 billion bond also held by the European Central Bank (ECB) will also mature. If a deal is still not negotiated by this date and the country defaults Greek banks could be cut off their access to ELA, leading the first step of a “Grexit.”