Evidence that Greece’s cash squeeze is hurting the economy may heap more pressure on Prime Minister Alexis Tsipras to seal a deal with creditors as haggling over reforms drags on.
Unemployment data on Wednesday will highlight that more than a quarter of Greeks remain out of work, according to economists. The figures will come a day after the European Commission gives its latest assessment of the country, when it will probably cut its 2015 growth forecast.
A jobless rate of more than 25 percent is one of the legacies of a recession and debt crisis that also left the nation with a cash shortage. Greece has looming payments to the International Monetary Fund, and must refinance 1.4 billion euros ($1.6 billion) of short-term debt maturing Friday. That will push its finances to the limit as it tries to pay wages and pensions and service debts without any bailout disbursements since August.
“With the liquidity squeeze the government will be delaying payments and therefore there’s an impact on the real economy,” said Riccardo Barbieri Hermitte, chief European economist at Mizuho International in London. “It’s pretty obvious the economy will feel the effects of this renewed uncertainty, even if ultimately the worst is avoided.”
The commission’s new forecasts on Greece are part of an update for the entire 19-nation region. The Brussels-based body will “significantly” reduce its Greek projection from 2.5 percent, Vice President Valdis Dombrovskis said in a Handelsblatt interview published late last month.
Greece’s future in the euro area depends on ending a standoff with creditors over reforms in return for more bailout funds. Urgency in negotiations has increased as the sides try to reach a preliminary agreement before a scheduled meeting of the region’s finance ministers on May 11.
With a deal proving elusive since Tsipras’s election in January and deposit outflows continuing, the European Central Bank is studying measures to rein in emergency liquidity for banks to limit its own risk. Any restriction there could further strain Greece’s survival in the currency bloc.
“The ECB certainly holds the gun, but would not want to be seen pulling the trigger,” Gilles Moec, chief European economist at Bank of America Merrill Lynch, wrote in a note. “Were the central bank to ‘turn the tap off,’ then mechanically the Greek banking sector would go bust.”
With Tsipras scrambling for cash, he ordered municipal authorities last month to shift their deposits at commercial banks to the central bank to enable the government to pay salaries and pensions. After a 200 million-euro interest charge to the IMF on Wednesday, Greece has a repayment of about 775 million euros due days later.
“The risk of an unravelling occurs if there is an accident, and Greece decides to go into arrears in their payments to the IMF,” Nouriel Roubini, chairman of Roubini Global Economics, said on Bloomberg Television on April 28. “The Greeks know that if an accident occurs it’s the beginning of potentially Grexit.”