RIGA, Latvia – When is a deadline not really a deadline and a deal not really a deal? When it’s to do with Greece’s bailout, apparently.
The country had an end-of-April date to agree to more reforms in exchange for rescue money its creditors had set aside. But as the country prepares to confront its European creditors on Friday at a meeting in the Latvian capital of Riga, all sides say an agreement is a long way off.
The lack of a plan that might protect Greece from defaulting and even falling out of the euro is darkening the clouds of uncertainty over the country, destabilizing its banks and threatening a long dreamed-of economic recovery.
Global financial officials gathered in Washington D.C. last week said Greece remains one of the biggest risks to the world economy even though the 19-country eurozone has done a lot over the past five years to insulate itself.
For weeks the meeting in Riga was expected to be the one when Greece’s immediate financial future would be sorted out. Greece’s left-wing government, elected in January on a mandate to bring crippling austerity to an end, would present its reform plans to its creditors in the eurozone. If all worked out as planned, Greece would be handed the remaining money available in its bailout program – 7.2 billion euros ($7.7 billion) – to pay off upcoming debts to its creditors in the eurozone and the International Monetary Fund.
Calm would be restored, fostering confidence in the Greek economy.
But it’s never that simple when Greece is concerned.
After weeks of tortuous discussions that have yielded little besides distrust, Greek Finance Minister Yanis Varoufakis is not expected to present any reform plans on Friday. Creditors are demanding reforms that include sweeping changes to pensions and labor rules. But the Greek government has ruled out many key demands, arguing it was elected to end the kind of stifling budget austerity that contributed to a 25 percent contraction in the economy. Its focus is geared far more on fighting corruption and increasing its tax take than more cuts.
The timing of a deal is likely to depend on when Greece runs out of money and can no longer afford to resist the creditors’ demands. When that will happen is unclear, too.
The country was forecast to run out of money at the end of this month, but is scraping together spare cash from municipalities and state enterprises like hospitals and the national gallery. That could give it 2 billion euros ($2.1 billion), enough to get through May, when it has to pay 1 billion euros to the IMF. A country can technically delay a payment to the IMF, but it’s never been done before by a developed country.
One official said the only deadline that matters is the end of June, when the European part of Greece’s 240 billion-euro international bailout expires. If Greece can rummage cash to survive until then, talks could keep on going. It owes the IMF another 1.5 billion euros in June.
The next gauge of progress could come from a meeting Thursday between Greek Prime Minister Alexis Tsipras and German Chancellor Angela Merkel on the sidelines of an emergency summit on migration. Though Merkel has been immovable in her insistence that Greece reform its economy, she has always insisted there was no way the country could be allowed to fall out of the euro.
As a result, the prevailing view in markets is a deal will be reached after much soul-searching and bickering – as in the past.
That’s evident in the markets. Though bond market investors think the possibility of a Greek default has grown over the past few weeks, the worries of its implications are far less acute than they were in 2012. The interest rate on Greece’s three-year bonds is around 28 percent, way down on the 120 percent it hit three years ago, when the fears of a “Grexit” from the euro were at their highest.
One factor that could accelerate the timing of a deal would be if Greeks start withdrawing their money from the banks in droves. That would threaten the banks with collapse, which would force the government to put a lock down on the financial system, with uncertain consequences.
“I try to take all the toing and froing with a pinch of salt,” said Neil Mellor, an analyst at Bank of New York Mellon. “I’m inclined to believe they will make an agreement, maybe not on the day, and find money down the back of the sofa in the meantime.”
If and when a Greek deal is achieved, the country will likely face more drama in the months ahead, as the 7.2 billion euros will only last so long and it will need more money.
The crisis won’t be solved definitively until there’s a further deal to reduce the burden of Greece’s debts, which stand at over 170 percent of GDP, through such measures as extending the date at which the loans are repaid.
“They are still going to continue to kick the can down the road until they deal fully with the unsustainability of the debt,” said Eric LeCompte, Executive Director of Jubilee USA Network.