BUSINESS

Markets Tumble As IMF Negotiators Walk Away From Greece Crisis Talks

06/12/2015 12:49 EDT | Updated 06/12/2015 12:59 EDT

ATHENS, Greece -- Markets tumbled Friday as investors reassessed their recent bout of optimism over the likelihood of a deal that would prevent the country from going bankrupt.

The moves were stoked by the International Monetary Fund's decision on Thursday to send its negotiators home from bailout talks with Greek officials in Brussels, citing a lack of progress. Observers had been increasingly optimistic that a deal would be reached by the end of the month.

The main Athens stock exchange was down 5.6 per cent in late-afternoon trading, a day after it surged 8 per cent on hopes of an imminent breakthrough that would unlock bailout funds that Greece needs to pay upcoming debts and avoid a default.

The Dow Jones Industrial Average was down 0.8 per cent, to 17,896, as of mid-day. Toronto's S&P/TSX was down 87 points, or about 0.6 per cent.

The news also weighed on European markets, with most indexes in the region lower. The Stoxx 50 index of the region's leading shares was down 0.9 per cent.

"The IMF unexpectedly blew a giant hole in the recent optimism,'' said Michael Hewson, chief market analyst at CMC Markets.

Greece's 240 billion-euro ($270 billion) bailout expires June 30, at which point the country will lose access to the rescue loans it desperately needs to repay debts and avoid a default that could force it out of the euro.

The IMF's move does not mean negotiations have come to an end. Talks are expected to continue among the Greeks and Europeans ahead of a meeting of the eurozone's 19 finance ministers late next week. That meeting, according to European Union President Donald Tusk, ``is really crucial and should be decisive.''

"The IMF never leaves the table,'' said spokesman Gerry Rice. "We remain engaged, but the ball is very much in Greece's court right now.''

German Chancellor Angela Merkel stressed the importance of continuing with the talks. "Where there's a will, there's a way, but the will must come from everybody,'' she said in a speech in Berlin. Germany stressed that solution would have to include the IMF.

Greece's creditors — its fellow eurozone states and the IMF — want the country to commit to new economic reforms before they disburse the last 7.2 billion euros ($8.2 billion) left in Greece's bailout fund.

The key points of contention appear to be cuts to Greek pensions, changes in the labour market and the size of Greece's government budget. Jeroen Dijsselbloem, the eurozone's top official, said the onus was on the Greek government to come up with "sound'' proposals.

The final installment has been pending since last year and with no access to the international borrowing market, Greece has been struggling to pay both its international debts when they fall due, and to continue paying salaries and pensions.

Without outside help, Greece is unlikely to be able to repay a roughly 1.6 billion-euro IMF debt installment due June 30 and larger debts due to the European Central Bank in July and August.

"We are coming to a head,'' said David Mackie of JP Morgan. "Our judgment remains that Greece will offer concessions to get a deal. The Greek position deteriorates dramatically beyond the end of June, as capital controls would likely make the political and economic situation in Greece even more difficult than it is now.''

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