State is running short of cash
The lockdown extension will require almost the entire financial arsenal of the government, which in the first quarter of 2021 will supply some 6.5 billion euros in liquidity of out of a budgeted total of €7.5 billion for the entire year.
Finance Ministry agencies are working on the support measures to apply up until the end of March so as to keep businesses alive. However, this is a very difficult task as the funds are limited and some government officials are already recommending the containment of support measures in the January-March period, fearing the pandemic could continue to pose a serious risk until end-June.
The government is utilizing Greece’s cash buffer (of over €30 billion) for the payment of salaries and pensions, as state revenues have declined considerably, and there are no more sources for the state to draw liquidity from to support businesses and workers.
For example, the suspension of labor contracts costs €600 million per month and the ministry has already earmarked €1.2 billion for financing this measure in January and February. Most of that amount (€1 billion) has been included in the state budget as Labor Ministry expenses, with the other €200 million coming from the extraordinary reserves of the budget for this year, amounting to €3 billion.
This emergency reserve is being used to channel liquidity to the market, with the bulk going toward the fifth and sixth stages of the cheap state loans program (“Deposit To Be Returned”) in January and March (set to top €2.2 billion).
However, the ministry is hoping to draw funds from the React EU program, intended to tackle the consequences of the coronavirus. If the loans program is partly covered by European resources, more cash can be saved from the emergency reserves to be used for covering the needs of the economy.
A top ministry official expressed major concern about the extension of the lockdown, due to the diminishing capacity of state finances to support the market, in a year when Greece must pay its creditors €11.5 billion.