Empty Greek Coffers Bring ‘Accident’ Threat Closer
With Greece’s coffers emptying and payments looming, Prime Minister Alexis Tsipras’s government is in a tight race to avoid a financial day of reckoning after receiving a “final political push” from his EU partners.
While Tsipras may have bought some time after yesterday’s European Union summit in Brussels, he acknowledges Greece is facing “liquidity pressure”, without revealing how much money is left in the bank. The country’s cash shortfall is projected to hit 3.5 billion euros ($3.7 billion) in March, according to Bloomberg calculations based on 2015 budget figures.
After nearly four hours of talks with German Chancellor Angela Merkel and other European leaders yesterday, Tsipras received no guarantees that creditors would unlock cash from a 240 billion-euro bailout package unless concrete steps are taken to implement agreed reforms. The EU chiefs warned him time is running out to overcome a standoff over the aid and that the Greek government needed to submit a new list of reform measures rapidly.
“To be quite honest, the ball is in the court and in the hands of the Greek government,” Finnish Prime Minister Alexander Stubb told reporters in Brussels today on the second day of the EU summit. “The institutional decisions were taken on Feb. 20 after long and difficult negotiations and now a final political push has been given.”
As Tsipras prepares for another meeting with German Chancellor Angela Merkel in Berlin on Monday, concerns grow as to whether he’ll be able to pay salaries and pensions next week. Just how long Greece can survive on reserves isn’t known, with estimates ranging from a matter of days to a few months. An EU official yesterday said the understanding among euro-zone leaders is that Greece has enough cash until April.
“A government should not be in this position because it’s a difficult situation prone to accidents,” said Athanasios Vamvakidis, head of G-10 foreign exchange strategy at Bank of America Merrill Lynch. “We are assuming that in April and May the government will be paying mostly wages and pensions. For everything else, things will be delayed, so the government will be running arrears.”
Greece has signed off on a repayment of about 350 million euros of loans to the International Monetary Fund on Friday, two Greek government officials said.
Investors were relieved on Friday that at least an accident has been averted for now. Greek bonds recovered from multi-month lows, while the Athens Stock Exchange index was trading 2.7% higher. The yield on three-year bonds was 55 basis points lower at 23.2 percent at 13:19 p.m. in Athens, after reaching yesterday the highest level since July, when the notes were first issued. The Athens Stock Exchange index has fallen 15.7 percent so far this month, while the yield on three-year bonds has risen almost 9 percentage points as a rift between Greece and its creditors widened.
Rupture Avoided
“We avoided a rupture which could lead to a depositors panic next week,” George Pagoulatos, a professor of European politics and economy at the Athens University said. “On a more substantial level, we saw that neither side wants to push things to the edge. The fact remains though, that Greece needs to deliver on concrete reform commitments, and it couldn’t have been otherwise.”
Even if Tsipras meets March obligations, things could only get tighter in coming months. The second-quarter shortfall, including debt payments, is an estimated at 5.7 billion euros, based on Bloomberg calculations using monthly figures from the 2015 budget passed by the previous government and finance ministry information on the debt servicing costs.
The second-quarter projection assumes Greece is able to roll over short-term debt as it comes due, most of which is held by the country’s banks. The lenders thus far have participated in liquidity-draining auctions rather than let the country default. That could change if things deteriorate.
Deposit Outflows
Greek daily deposit outflows accelerated to a one-month high Thursday, two people familiar with the matter said. At this pace available liquidity could be exhausted in a matter of days, one of the people said.
The Bank of Greece has plugged cash shortfalls by tapping the reserves of other public sector entities, including pension funds, hospitals, and universities. How much money these entities have and how easily the government can directly access these funds is critical to knowing how long Greece can keep paying its bills. Officials directly involved in the bailout talks have said they don’t have a clear picture.
“Although visibility on the exact liquidity position is low, reports continue to suggest that the Greek authorities’ ability to continue to meet their liabilities is measured in weeks,” Malcolm Barr, a JPMorgan economist based in London, wrote in note to clients Wednesday.
The public sector held 12.3 billion euros of deposits in the Greek banking system at the end of January, including 3.4 billion euros from the social security fund and 2.2 billion euros from local governments, according to the most recent data available from the central bank.
Plugging Gaps
If the government taps public sector deposits held at commercial banks, this could add to funding pressure on Greek lenders, which have lost more than 20 billion euros in deposits since November and are reliant on an emergency funding through the European Central Bank to prop them up.
Tsipras is plugging the budget gaps as best he can. Spending in February was 800 million euros less than originally planned and this week the government moved forward with measures designed to bring in more revenue, including a plan to allow repayment of tax arrears in 100 installments.
The government potentially bought itself some time thanks to the ECB. The bank’s governing council on Wednesday raised the amount available to Greek banks by 400 million euros to about 70 billion euros, people familiar with the matter said. Still, that leaves the financial system with a cushion of just 3 billion euros and was less than half of what Greece requested, the people said.
“If we start seeing progress in the negotiations and it becomes clear that we are going to have a deal and Greece will receive official funding in June, there is absolutely no way that the Europeans will allow an accident in Greece,” Vamvakidis said. “However, if the brinkmanship continues and by the end of March we don’t have some concrete progress in the negotiations and we are exactly where we are today, then these funding pressures will become more severe.”