Greece Needs Urgent Aid for $1.76-Billion IMF Payment in June

Greece Needs Urgent AidOn Monday, May 25, a government spokesman for Greece said the country wants to pay its financial obligations, but a deal with its international creditors over further rescue funding is needed as soon as possible. (Source: The Wall Street Journal, May 25, 2015.)

In June, Greece is scheduled to pay €1.6 billion ($1.76 billion) to the International Monetary Fund (IMF).

On Sunday, May 24, Greek Interior Minister Nikos Voutsis told television station Mega that Greece’s payments to the IMF next month cannot be met. He said “This money will not be given, it does not exist.” (Source: Ibid.)

So, in short, the situation is this: Greece wants to pay its debt, but doesn’t have the money; if the creditors want to get their money back, they need to lend more to Greece.

Anti-Austerity Measures: More Countries to Follow

Since Prime Minister Alexis Tsipras took office in January 2015, Greece has been working on a series of anti-austerity measures. To the new government, cutting wages and pensions make up a red line that will not be crossed.

More countries in Europe might be on their way to anti-austerity movements. Spain’s local election results showed voters’ support for the anti-austerity party Podemos, which was founded just last year. Portugal also has a new anti-austerity party, LIVRE, which has been trying to gain votes from the population.

If these debt-infested countries are governed by anti-austerity governments, they might be able to negotiate more rescue funds to help relieve their short-term domestic problems. But fundamentally, their debt repayment obligations will increase. If they cannot pay, they will either face further downgrades (which will make borrowing even more difficult) or they will leave the eurozone. The impact of the latter will be unthinkable.

The Effect on U.S. Businesses

Keep in mind that the U.S. is not immune to the economic crisis in Europe. Many U.S. businesses have operations in Europe and their performance over there could be reflected in their stock prices at home.

Among the 30 companies that make up the Dow Jones Industrial Average, 12 have reported revenue growth numbers for Europe for the first quarter of 2015. Of the 12 companies, nine have reported year-over-year declines in revenues. (Source: Factset, May 22, 2015.)

If the situation in Europe does not improve, U.S. multinationals will continue to struggle with sales growth.