Greece has got another crucial week ahead, and the government now looks likely to miss its own self-imposed deadline of April 24 for accessing bailout cash.
The Eurogroup summit of eurozone finance ministers meets on Friday, a date which finance minister Yanis Varoufakis was once “very confident” that there would be a deal on the country’s bailout by. As it stands, almost nobody now expects a deal this week, and Athens is running out of cash.
Over the weekend, European Central Bank boss Mario Draghi said that the Greek government needed to do “more work, much more work is needed now, and it’s urgent.“
Here’s French investment bank Societe Generale’s global head of economics, Michala Marcussen, in a note this morning on what it would take for an agreement:
Reaching that point would require that Greece firmly commit to no rolling back of labour markets reforms and engage a deficit reducing pension reform. To secure a full payout, Greece must meet the IMF’s specific structural benchmarks, including product and service reforms and the full privatisation programme. Internally in Greece, making further concessions on electoral promises will not be easy for the Syriza led government and could ultimately trigger early elections.
Even an agreement sufficient to secure a partial payout would not buy Greece much time. May and June have €2.48bn of principle and interest due to IMF due, and come July a total of €4.83bn of payments are due to primarily the ECB. In addition, Greece has to meet its regular payment obligations for the proper functioning of the public sector and secure revenues. The situation has not been aided, moreover, by challenging negotiations. The risk of a Greek default and/or an eventual Grexit remains significant in this context.
On that front, an interview Greek Deputy Prime Minister Yannis Dragasakis struck a negative tone at the weekend, according to Bloomberg. He told To Vima newspaper that the new government would not “budge from [its] red lines”.
What’s more, a May 11 deadline may be too late for Greece. A Reuters exclusive on Friday suggested that the state was scraping the barrel to make cash payments to public servants and pensioners this month, after which it will be pretty much dry. Nobody knows quite when the government’s fund will run out — it could be a major International Monetary Fund repayment on May 12, or it could be later.
A late payment to the IMF is pretty much unprecedented for an advanced economy — Soc Gen analysts note that Greece would join a club currently occupied by only Somalia, Sudan and Zimbabwe if it failed to find the money.
No one now expects a deal to unlock Greek bailout funding at this week’s meeting of eurozone finance ministers in Riga — originally set as the final deadline for a deal. The new final, final deadline is now said to be a summit on May 11.
But among European politicians and officials gathered in Washington DC last week for the International Monetary Fund’s Spring Meetings, there was little optimism that a deal will be agreed by then.
The two sides are no closer to an agreement than when the Greek government took office almost three months ago. “Nothing, literally nothing has been achieved,” says an official. In fact, it is worse than that: so far, the bulk of Athens’s reform plans would actually cost money or reduce government revenues, according to eurozone officials.
To complicate things further, Finnish elections this weekend left the euro-sceptic Finns party in second place. The victorious Centre party may have to make a coalition with them, at which point Finland would become even more of a brake on warmer relations with Greece.
Once again, this will be Europe’s biggest market story this week, and any hint that Greece is on the verge of defaulting will cause fireworks.