Greece: The End of the Road

The Greek government is running out of cash. It is somewhat impressive that the struggling country has made it thus far without official loan disbursements (the last IMF disbursement was almost a year ago).

The fiscal and debt management authorities have come up with many innovative ideas to use cash buffers from various state entities, however, even this is now running out. The May 12th payment to the IMF came at risk before an idea to use Greece’s SDR reserve allocation saved the country at the last moment. The IMF payments in the first half of June are at risk. The June payment schedule Greece must meet is as follows:

    June 5th: €305m

    June 12th: €312m

    June 16th: €573m

Without official funding, Greece will not be able to repay the IMF and pay pensions and wages in June.

The government has recently said that a deal is within reach. In contrast, European and IMF officials continue expressing concerns about slow progress, despite some recent improvements, and still many open issues. Even if there is a deal on the program review, negotiations for a new program would be much more difficult. Greece would not receive official funds the day after a deal on the current program review. The Greek parliament would have to vote and approve such a deal first. Even such a vote would not be enough to conclude the program review, because European parliaments would also have to vote, whilst Greece would need to implement the review’s prior actions.

However, there could be some potential. The Europeans could find a way to temporarily fund Greece if the Greek parliament approves a deal—the ECB could increase the limit for t-bills or distribute its profits from GGB holdings. Despite the aforementioned, it is very likely that Greece will run out of cash before any new official help.

The Greek government has been trying to reach an agreement that their parliament would be able to approve without the help of opposition parliamentarians, as the latter could put the current government at risk. This has proved to be impossible so far. Unless the government’s parliamentarians make a U-turn, there are substantial risks in the weeks ahead.

Potential negative ramifications include a collapse of program negotiations, a failed parliamentary vote on a deal, a referendum on a deal, or a collapse of the Greek government and substantial uncertainty until the formation of a new government. The Greek crisis was always as much about politics as economics. Now it is all about politics.

The Greek saga may perhaps have an unhappy ending. Inside or outside the euro, with or without additional debt relief, Greece can recover only when it starts to build a modern European state with a solid government.

(Πηγή: themarketmogul.com)