Greece Turmoil: IMF to release funds despite EU delay

The IMF will release crucial loans to save Greece from default despite a likely delay by the European Union in agreeing a second bailout for the heavily indebted state, euro zone sources said today.

The news came as Greek Prime Minister George Papandreou, beset by mass street protests and resignations from his ruling socialist party, was planning to reshuffle his cabinet and drive through a draconian austerity plan to meet EU/IMF terms.

With financial markets unnerved by a deteriorating political situation in Greece and lack of agreement in the euro area on a new rescue plan, the EU's top economic official said he expected Athens will get the desperately needed next aid tranche in July. Today’s stock markets were severely hit by worries over the Greece bailout. World stocks hit a three-month low, the euro tumbled and top-rated government bonds rose as investors began to price in a possibility of disorderly default in Greek sovereign debt.

"I am confident that next Sunday, the Eurogroup will be able to decide on the disbursement of the fifth tranche of loans for Greece in early July. And I trust that we will be able to conclude the pending review in agreement with the IMF," Economic and Monetary Affairs Commissioner Olli Rehn said in a statement issued to try to calm markets.

Two lawmakers quit Greece's ruling PASOK party and a group of dissident socialists requested a caucus meeting in a challenge to Papandreou's efforts to drive his programme through parliament despite national strikes and violent protests.

A senior IMF official said the International Monetary Fund was deeply concerned by the latest turmoil in Athens but stood ready to help if the government can win consent for its package of spending cuts, tax rises and state asset sell-offs.

"I am concerned the situation has changed very dramatically in the last 24 hours," Zhu Min, a special advisor to the IMF's managing director, said in Paris after a giant demonstration in Athens turned violent and Papandreou offered to quit.

"We hope the Greek government will have consent ... and we will be able to conclude our review," he said. "We are ready to provide support because it is an absolutely important issue for Greece, for Europe and the whole global economy."

The IMF had made the release of the US$17 billion aid tranche, due on June 29, conditional on euro zone states agreeing to meet Greece's funding needs for the next 12 months.