Greece moves closer to default as Syriza splits over IMF representative

Party rebels force leadership's choice for IMF representative to withdraw

Elena Panaritis had supported Greece’s previous contentious bailout EU/IMF programme (Rex)

Fresh divisions opened up in the Greek government on Monday night after the administration’s nominated representative to the International Monetary Fund was forced to step down following a revolt from within the Syriza Party.

Elena Panaritis was chosen for the IMF role on Friday but her appointment provoked a hostile letter from 40 Syriza deputies, who said her views – as a previous Pasok party member who supported Greece’s previous contentious bailout EU/IMF programme – were incompatible with Syriza’s anti-austerity plans.

“As I never asked for this position and given that I accepted it solely to help the government with my experience on how the IMF works, it is impossible for me to accept the appointment amid negative reactions by Syriza lawmakers” Ms Panaritis said.

The criticism of her appointment has been interpreted as an indirect attack on the Greek finance minister Yannis Varoufakis, who heads the committee that picked Ms Panaritis, sparking more speculation about his own fate. Mr Varoufakis said rumours of his imminent resignation last week were “grossly premature”.

The fiasco highlights rising tensions in Syriza as the Athens government seeks a last-minute deal with creditors in order to avert a potentially disastrous default. Greece is due to repay €300m to the International Monetary Fund on Friday and a total of €1.6bn due by the end of the month when the official bailout expires and the country’s banking system could lose the backstop of the European Central Bank.

Unless Greece agrees a deal with its eurozone creditors to unlock a €7.2bn bailout payment by the end of the month few expect Athens to be able to avoid default.

Analysts at Goldman Sachs suggested this might now be the only way to settle Greece’s future in the eurozone. “Not only is it possible that we may need to see sovereign technical default and blocked Greek bank deposits in order to come to an accommodation between Greece and its official creditors, it may be necessary to do so in order to break the current impasse in negotiations” said chief European economist Huw Pill.

The negotiations remain deadlocked over the issues of pension and labour market reforms. EU officials denied a market rumour that a deal was imminent.

The Greek economy is now thought to be back in recession and there are growing signs of deposit flight from its banks as the potential end of last resort support from the ECB moves closer. Official statistics last week showed households and firms pulled €5bn out of banks in April, as domestic deposit hit its lowest level for a decade.

Among the signatories of the letter protesting to the appointment of Ms Panaritis were were the deputy prime minister Yannis Dragasakis. “A prominent representative of bailout policies cannot represent the government… It’s not a symbolic but a political issue. It’s wrong and we ask that the decision is taken back” it said.

Ms Panaritis said she would continue to support the government in talks with its lenders until Athens is set free from its bailout “shackles”.

Greek financial markets were shut for an official religious holiday. But Greek 10 year bonds traded in London saw yields rise to 11.49 per cent, up from 11.25 at the end of last week.