Greece misses budget targets for 2014, fueling fiscal concerns

Greece fell short of its budget targets last year, prompting new concerns about the cash-strapped nation’s ability to pay bills as government officials met with creditors in Athens Wednesday.

The most-indebted state in the euro area posted a budget surplus before interest payments of 0.4 percent of gross- domestic product last year, its statistics office said. That compared with a target of 1.5 percent set out as terms of a bailout package. The figures come a day after the European Central Bank was said to have raised the ceiling on Emergency Liquidity Assistance to Greece, leaving the nation’s lenders with a buffer of about 4 billion euros ($4.2 billion).

The budget figures show “that Greece needs external financing not just to meet redemptions but also to meet its current financing needs,” said James Nixon, chief European economist at Oxford Economics in London. “There’s very little appetite in Europe to extend significant lending to Greece, and so that means that effectively there will be a demand for renewed austerity and further fiscal tightening.”

Greek banks are being denied access to the ECB’s regular refinancing operations because of the anti-austerity government’s resistance to the terms attached to its emergency loans. Uncertainty over Greece’s future in the euro area has also triggered steep deposit outflows, leaving lenders reliant on emergency cash injections that are subject to weekly reviews by the ECB.

Bank stocks

Yields on Greek 10-year notes rose to as much as 12.25 percent today, the highest level in two years. Greek banks’ shares fell as much as 9.7 percent in Athens, reaching their lowest level in at least 20 years.

Having lost market access, the Greek state is running out of cash, as disbursements from its 240 billion-euro bailout ceased last summer. The government can use cash reserves of state enterprises, pension funds and local governments to stay afloat until May, an international official involved with the negotiations between the country and its creditors said Tuesday.

The Greek government “hasn’t made too many friends,” as negotiations to reach an accord between Athens and its European partners continue, Spain’s Finance Minister Luis de Guindos said in an interview with Cadena Ser radio.

Riga meeting

The two sides are moving further apart from each other, the international official said, adding that the government’s refusal to proceed with any privatizations, and its pledges to reverse labor-market reform, pension system overhaul and budget savings can’t be accepted by the country’s creditors. The official asked not to be named as talks between the two sides are not public.

Germany is working on a plan that would allow Greece to stay in the euro in the event of a sovereign default, weekly newspaper Die Zeit reported, without citing anyone. The German Finance Ministry declined to comment on the report.

Euro area finance ministers, who will meet in Riga, Latvia, on April 24, will assess whether Greece has made enough progress to warrant a bailout disbursement. European Union officials have asked that a specific set of reforms be submitted by early next week.

“Time seems too short until April 24 to work out the technical details of the reform list, particularly regarding the insurance system and labor market reforms,” UBS analysts Ricardo Garcia-Schildknecht and Thomas Wacker wrote in a note to clients. “We still view the probability of a debt default at 50-60 percent.”

Treasury bills

Greece’s Public Debt Management Agency sold 812.5 million euros of three-month debt. The government will use the proceeds to roll over short-term notes maturing Friday. Greek banks, whose biggest shareholder is the state, and the Bank of Greece, which manages cash reserves of pension funds and other public entities, cover the hole created by lack of investor interest for the country’s notes. [Bloomberg]

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