Greece struggles to make debt math work amid bailout standoff

As talks over the disbursement of bailout funds for Greece drag on into their seventh consecutive month, the deadlock threatens to pull the country back into a recession this quarter, or even a possible default within weeks.

Greece needs to refinance or repay about 6.5 billion euros ($7.2 billion) in debt and interest in the next three weeks, including treasury bill redemptions, according to data compiled by Bloomberg. To top that, its budget forecasts a 2.1 billion cash deficit in March. A shortfall in tax revenue already opened a cash hole of 217 million euros in January, derailing budget targets.

Having lost market access, Greece’s only lifeline is emergency loans extended by euro-area member states and the International Monetary Fund. Failure to secure an agreement on the disbursement of funds by them has triggered a liquidity squeeze, raising doubts about the country’s solvency, as well as the sustainability of its nascent economic recovery.

“There’s no chance the quarrel won’t affect the economy” said Haris Theoharis, a lawmaker for Greece’s River party and a former secretary of public revenue. “Every investment has been put on hold, pending the result of the talks,” he said by phone on Wednesday.

Greek Finance Minister Yanis Varoufakis said that the country has an alternative plan to plug its financing shortfall in March, without specifying what it was.

“We go into the negotiations with optimism, with especially good preparation, and I believe there won’t be a development,” Varoufakis said in Athens, on Wednesday. The answer to the question of whether “there is an alternative is that there is one,” he said.

Paris Talks

Greece’s month-old anti-austerity government ledby Prime Minister Alexis Tsipras has yet to agree with its creditors on the terms for the disbursement of an outstanding aid tranche totaling about 7 billion. Negotiations that started in Paris in early September between the previous government and the troika of the European Commission, the IMF and the European Central Bank didn’t yield any results. A snap election in January put an abrupt end to the talks.

Two officials directly involved in Greece’s 240 billion euros bailout said the country could potentially use its available reserves to make it past the end of this month. A third official said Greek financing needs, including debt repayments to the IMF, are only safely covered for another two weeks. The officials asked not to be named while negotiations continue. A spokesman for Greece’s finance ministry declined to comment on when the country may run out of cash.

Greece’s government has so far been covering its cash deficit by tapping the reserves of public entities, including pension funds, hospitals, and universities. It also rolls over treasury bills, forcing Greek banks to make a choice between participating in liquidity-draining auctions or letting their sovereign default.

Pension Reserves

IKA, Greece’s biggest pension fund, said in a statement Wednesday that repurchase agreements with the central government are not an extraordinary event.

Reports to the contrary “do not contribute positively in this crucial period for the economy, and exacerbate climate of insecurity and uncertainty among Greek pensioners,” IKA said.

The internal recycling of reserves to tap liquidity shortages is not always benign.

“When short of cash, governments increase their arrears, delay tax rebates, and hold public investment payments,” said Panos Tsakloglou, a professor at the Athens University of Economics and Business.

In the case of Greece this asphyxiation, if prolonged, could derail nascent economic recovery, he said.

IMF Repayment

Uncertainty over Greece’s financing amid a protracted standoff with creditors over the terms attached to the country’s bailout, has already taken its toll on the economy. Greece’s gross domestic product shrank in the last quarter of last year after nine months of growth, and a purchasing managers’ index showed manufacturing activity kept contracting in the first two months of 2015 and depositors withdrew about 20 billion euros from the country’s banks.

As Greece prepares for a repayment of 300 million euros to the IMF on Friday, which will further deplete its buffers, creditors warn that no bailout disbursements will be made unless the new government meets economic reform milestones.

Greek banks’ exposure to treasury bills has already reached the limit acceptable to regulators in Frankfurt, and won’t bailout the government with more short-term notes, unless the ECB allows them.

Even if the Greek state somehow manages to pay its bills this month without a bailout tranche, the country’s private sector, in which more than a quarter of the workforce is without a job, may not be resilient enough to withstand a long delay.

“The standoff hurts the most productive sectors of the economy,” Theoharis said.


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