Risk of Greece debt default rises as deadline looms

Last Updated May 27, 2015 12:03 PM EDT

Greece's embattled economy faces another crucial deadline. On June 5 the Greek government is scheduled to repay 300 million euros ($329 million) to the International Monetary Fund, the first of four payments totaling $1.76 billion.

Greece is thought to have enough funds to make the first loan payment. But concerns are rising that, barring an agreement with creditors, it will default on its other obligations coming due next month. Over the weekend the Greek interior minister said funds for the four-installment IMF loan "will not be given and [are] not there to be given."

How did it come to this for Greece? In an effort to dig its way out of years of crippling debt, a situation that began with the global economic downturn and the ensuing European debt crisis, Greece agreed to a $270 billion economic bailout package with the so-called troika of the European Union, the European Central Bank and the IMF.

But Athens' new leftist government has chafed at the hardships many Greeks are having to endure due to the austerity cuts required by international lenders under the bailout, including wage and pension cuts. In recent months Athens has been calling for reforms to the debt's current structure, as well as a "mutually advantageous" deal.

Amid this uncertainty, some of Greece's creditors are staying optimistic. On Tuesday a senior German official, speaking on condition of anonymity, told Reuters that it is "encouraging" that the Greeks are trying to repay the 300 million euros.

"I think there is reason to believe that we will not be talking about a default situation around June 5, neither before or immediately thereafter," the official added.

Greek Prime Minister Alexis Tsipras said Wednesday that the country is nearing a deal with its creditors. "[W]e have made many steps, and we are in the final stretch -- we are close to an agreement," he said after a meeting at the finance ministry in Athens, according to The Associated Press.

The specter of a Greek default, a worst-case scenario that could lead to Greece's exit -- or "Grexit," -- from the from the eurozone, still exists. But some analysts believe the June 5 deadline isn't as dire as many are predicting.

"If Greece were to fail to meet a payment to the IMF, this would not... trigger immediate default," Michala Marcussen at Societe Generale said in a note. Instead, the IMF would wait a month before sending official word that the payment from Athens is overdue. That grace period would offer time to hash out an agreement, she said.

Still, the clock is ticking, and negotiations between Athens and its creditors must make considerable progress to clinch a deal by early next month. Marcussen estimates the risk of a Greek debt default at 40 percent.