Greece’s day of reckoning inches closer as debt payments loom
Greece will look for ways to assemble enough cash to pay its pensioners and employees this week, after euro area finance ministers on Friday said they won’t disburse more aid until bailout terms are met.
Europe’s most-indebted state will use the deposits of local governments, cities and other funds to meet end-of month payments totaling over 1.5 billion euros ($1.6 billion). By doing so, they risk straining liquidity buffers, after households and companies withdrew almost 1.3 billion euros in savings last week, according to a person who wasn’t authorized to speak publicly on the matter.
Greece has fought to unlock aid since striking a deal to extend its bailout program in February. The government has repeatedly expressed confidence that a deal was imminent, only to be rebuffed by euro-area officials seeking concrete steps. Last week was no different: days after Finance Minister Yanis Varoufakis said views were converging, his counterparts across the region hit him with a volley of criticism.
Greek bonds fell on Friday, sending yields on three-year notes up 144 basis points to 26.3 percent.
Systemically Manageable
Greek Prime Minister Alexis Tsipras met with German Chancellor Angela Merkel last week and later told reporters he was “very optimistic we are closer than before.”
Still, support for his confrontational strategy fell to 46 percent in a University of Macedonia poll for Skai TV published on Tuesday, compared with 56 percent a month earlier. Researchers interviewed 1,007 people between April 15 and 17 and the margin of error was three percentage points.
The consensus at the International Monetary Fund meetings in Washington this month was increasingly that a Greek default would be systemically manageable, UBS Chairman Axel Weber told the Swiss newspaper Neue Zuercher Zeitung.
The Governing Council of the European Central Bank may debate on May 6 whether to raise the haircut on Greek collateral posted against Emergency Liquidity Assistance, a decision that could worsen the country’s cash squeeze. ECB staff have already proposed increasing the discounts imposed on the securities banks post as collateral when borrowing emergency cash from the Bank of Greece.
State coffers may be further depleted on the same day when Greece needs to find 200 million euros for an International Monetary Fund payment.
Liquidity Shortage
Bleeding deposits and unable to access ECB’s regular financing operations while the bailout review remains stalled, Greek lenders currently rely on a 75.5 billion euro ELA lifeline.
The assistance is subject to weekly review by the ECB. Any reduction of the value of collateral that Greek banks pledge may mean the days of ELA are numbered, further increasing pressure on the government to make a choice between complying with creditors’ demands or imposing capital controls.
“It is perfectly feasible and absolutely necessary to reach an intermediary agreement,” Greece’s deputy prime minister Yannis Dragasakis said in an interview with Avgi newspaper Sunday. If the cash-flow deadlock persists “we will be forced to adopt on our own measures, which we are currently trying to avoid,” Dragasakis told the Syriza governing party- affiliated newspaper.
A spokesman for the Greek finance ministry declined to comment on the country’s cash reserves and liquidity situation.
Greek Polls
Tsipras held a call with Merkel to follow up on their meeting last week, a Greek government official said in an e-mail to reporters on Sunday. The leaders agreed to stay in contact during negotiations, and the call took place in a positive climate, the official said.
Negotiations between Greece and creditor institutions will resume with a call on Monday, and they will meet in person on Wednesday in a bid to speed up the process, the Greek official said.
Two polls published over the weekend showed a majority of Greeks are worried the country is at risk of going bankrupt. According to an Alco survey published in Proto Thema newspaper, 63 percent of respondents said the risk of default is real, and 48 percent said they are worried about leaving the euro area.
At the same time, Syriza still enjoys a lead of as much as 15 percentage points over the New Democracy party, its main opposition, in recent polls.
“We are increasingly convinced that unless a deal involving sub-tranches is struck in the next few days, Mr Tsipras’ solution will be to call early elections,” Michael Michaelides, a strategist at Royal Bank of Scotland Group Plc in London, wrote in a note to clients on Friday. “Elections will mean further noise, but given strong Greek public support for the Euro, we expect a probable Syriza victory with a new mandate to strike a deal will ultimately prove positive to finding a final agreement.”
[Bloomberg]
