IMF threat to withhold Greek aid spooks markets

The International Monetary Fund may withhold the next slice of aid to Greece due next month, the head of eurozone finance ministers said on Thursday, spooking markets with the possibility of default. European stocks fell and safe haven bond futures rose after Jean-Claude Juncker said the IMF expected the European Union to step in if it were unable to release the June aid tranche, but that would be impossible.
Juncker's spokesman later clarified that if European and IMF inspectors were convinced by new Greek austerity measures, there would be no problem with the June aid tranche. Greece's finance minister said this week that if the next 12 billion euro ($17 billion) payment was not forthcoming, the country would be unable to meet its obligations and would default.
Juncker said on Thursday: "If the Europeans have to acknowledge that the disbursement from the IMF on June 29 cannot be operationally implemented, then the expectation of the IMF is that the Europeans would step in for the IMF and take upon themselves the IMF's portion of the financing. "That won't work because in certain parliaments - Germany, Finland and the Netherlands and others too - there is no preparedness to do so," he told a conference.
Some analysts said Juncker's comments were an act of brinkmanship to press Greek political leaders, who meet on Friday, to form a consensus behind tougher austerity measures, revenue increases and privatisations to get the country's bailout programme back on track. An IMF spokeswoman in Washington confirmed the Fund could not continue to lend to Greece until it had financing assurances from EU partners for Athens' borrowing needs over the next year.
"We never lend when we don't have an assurance there will be no (financing) gap. That is how we maintain the safety of our members' money," spokeswoman Caroline Atkinson told a briefing. The IMF was also seeking assurances about Greece's fiscal and growth policies, she said. The EU funding is not assured because Greece has fallen behind targets for strengthening its finances, eurozone official sources told Reuters.