Christine Lagarde comments likely to infuriate Greek government, whose plea for debt relief and bailout extension was rejected

Greece must sign up to economic reforms before it gets debt relief, the International Monetary Fund, one of the country’s main creditors, has said.

Christine Lagarde, the head of the fund, said it would “be preferable to see a deliberate move towards reforms” in Greece before debt relief was offered.



Her comments – made in an interview with Reuters in Washington – are likely to infuriate the Greek government, whose last-ditch plea for debt relief, a bailout extension and a €29bn (£20bn) loan was rejected by eurozone governments on Wednesday.



Earlier this week Greece became the first advanced economy to default on a repayment to the IMF, when it failed to pay a €1.5bn loan, toppling Europe into full-blown political crisis.

The German government accused the Greek prime minister, Alexis Tsipras, of lying to his own people. Tsipras countered that his creditors were trying to blackmail Greece, during a defiant television speech in which he called for a no vote in Sunday’s referendum.



Greeks are being asked if the government should accept a bailout plan drawn up by its creditors that would restart financial aid in exchange for more austerity and economic reform.



The latest poll shows a narrow lead for yes, at 47%, while 43% are against, according to GPO survey of 1,000 people on Tuesday. An earlier poll that put the no camp in the lead was partly done before the Greek government imposed a €60 (£43) daily limit on the money people can withdraw from ATMs, leading to long queues outside banks across the country.



On Wednesday night the Eurogroup, made up of eurozone finance ministers, decided it was too late to extend Greece’s bailout or open talks on a new loan. The old bailout expired on Tuesday, depriving Greece of €7.2bn in emergency aid and €10.9bn to shore up its banking system.



Greece’s request for a €29.1bn loan from the eurozone bailout fund would be considered “only after and on the basis of the outcome of the referendum”, said Jeroen Dijsselbloem, the Dutch finance minister who chairs the Eurogroup.



Finland’s foreign minister, Alexander Stubb, said Tsipras’s “blackmail” speech earlier that day had not helped to build confidence.

Despite the uncertainty over the referendum outcome, the Greek finance minister, Yanis Varoufakis, said the government was aiming to secure a deal with its creditors on Monday.

But Lagarde’s intervention reinforces the view that a quick deal on debt relief is far from likely.

Bank closures taking their toll on businesses across Greece Read more

Meanwhile, the Greek economy has ground to a halt, with spending withering as a result of the €60 withdrawal limit. Shops have closed, assembly lines have stopped and food staples are disappearing from supermarket shelves in a sign of panic buying.

Greece desperately needs cash to pay pensions, public sector wages, and a long list of debt repayments. On 20 July, €3.5bn is due to the European Central Bank, but that is only part of €9.3bn in debt repayments due over the summer.

Adding to the pressure on Athens, the ECB on Wednesday decided not to increase emergency aid to shore up the Greek financial system, the same day that Greek pensioners began queueing at dawn to withdraw the €120 they are allowed for the week.

The ECB has poured €89bn into the Greek financial system to shore up banks starved of funds during the 10 months Athens and its creditors have argued over bailout terms. Having paused its aid at the weekend, the ECB’s governing committee decided it would remain frozen once it became clear talks had collapsed and Greece was imposing capital controls. The decision was not a surprise as the Frankfurt-based institution is anxious to avoid charges of political interference.