Greece is running out of options to fund itself despite a four-month bailout extension, raising pressure on Athens to quickly implement reforms it has vocally opposed or default on debt repayments in a matter of weeks.
Eurozone and IMF creditors gave Greece extra time until the end of June to complete the bailout program and receive the remaining 7.2 billion euros but it will not be allowed any funds until it passes a review that could take weeks to negotiate.
Shut out of debt markets and faced with a steep fall in tax revenues, Athens is expected to run out of cash by the middle or end of March. Its finance minister has warned that Greece will struggle to repay creditors starting with a 1.5 billion euro IMF loan repayment due in March.
Athens has been looking for quick fixes to tide it through the coming weeks but has not found one yet.
Euro zone officials hope the liquidity squeeze will force Prime Minister Alexis Tsipras’s nascent government to agree reform plans more quickly than the end of April deadline set by creditors, paving the way for bailout funding to be released.
“The liquidity squeeze is being used to push the Greeks to very quickly start discussions on the review and finish that as soon as possible – not even waiting for the end of April,” one euro zone official said.
Other options all appear to have problems. One possibility – the transfer of 1.9 billion euros worth of profits that the European Central Bank made on buying Greek bonds – will not be allowed until Greece has completed the bailout program.
Greece had also hoped it could tap the almost 11 billion euros of leftover money in the Greek bank stabilization fund, but euro zone finance ministers have decided the money would be returned to the Luxembourg-based euro zone bailout fund.
While it would still be available for Greek banks, it could only be released on the say-so from the ECB.
The only source of quick cash left to the Tsipras government now is issuance of Treasury bills, or short-term debt that matures in three or six months. But Athens’ creditors have set a 15 billion euro cap on such debt and it has already been reached.
The euro zone has so far ruled out any raising that ceiling, partly on concerns that it is tantamount to central banks financing governments. That’s because Greek banks have been using the T-bills as collateral to tap central bank funding and then using the cash to invest in more T-bills, helping the state cover short-term needs.
One person familiar with ECB thinking said that any extension of the T-bill limit was “very unlikely.” A senior Greek banker said the expectation in Athens remained that the ECB would relent and allow some leeway on T-bills.
“The Greek state is pinning all its hopes on the ECB allowing an extra T-bill auction,” the banker said.
The government is also putting a brave face on its funding crisis, and insists that T-bill issuance remains an option.
“At the moment the Greek economy can cover its funding needs in ways which don’t need any loan,” government spokesman Gabriel Sakellaris told Greek television. “For example, an increase in the level of T-bills which can be issued by the Greek state. That is a decision which the ECB should and can take.”
The onus is now on Athens to rush through reforms to unlock the remaining aid.
The government has submitted a reform plan to creditors that sidesteps politically dangerous measures like pension cuts, tax hikes and public sector layoffs included in the existing bailout.
But despite the acceptance of the reform plan by the euro zone, it has been criticized by two major creditors – the ECB and the IMF – for lacking detail and it is not clear how much flexibility Athens has in veering from its original bailout.
The reforms agreed under the previous government could be implemented within two to three weeks, a second euro zone official said.
But that appears highly unlikely, given complaints from Greece’s official creditors of not knowing who to negotiate with in Athens and a mood of anger and mistrust over contradictory messages on reforms.
For a period, Greece could save money by delaying payments to suppliers or try to raise up to 3 billion euros by borrowing from state entities such as pension funds though the government may already have used up part of this, one source familiar with the matter said.
In any case those options would only give Athens a breather of a few weeks, since it has monthly needs of about 4.5 billion euros, including a wage and pension bill of 1.5 billion and 1 billion euros in health and social security costs.
Latest budget data for January, meanwhile showed a 1 billion euro shortfall on tax revenues, adding to the country’s woes.
After the March IMF repayment, Athens faces 800 million euros in interest payments in April with a major financing hump in the summer, when it has to repay about 8 billion euros to official lenders including 6.5 billion euros to the ECB.
“Eventually they will have no other choice but to adopt the measures, and move quickly,” the first euro zone official said.