Once again, Greece is at a critical juncture.
Greece has another big payment deadline today, with €3.5 (£2.4 billion, $US3.8 billion) due to the European Central Bank (ECB). It’s the first payment since Greece defaulted on its €1.6 billion (£1.1 billion, $US1.7 billion) payment due to the International Monetary Fund at the end of June.
That missed payment kicked the Greece debt crisis up a gear, showing the country’s creditors just how serious Prime Minister Alexis Tsipras was about fighting his corner.
Everyone is much more relaxed about today’s deadline than they were about the last.
Greece was granted an emergency €7 billion (£4.8 billion, $US7.6 billion) loan at the tail end of last week as bridging finance while it negotiates a third bailout deal with creditors. So it has the money.
And we’re a lot less likely to see political opposition of the kind encountered with the IMF payment. Tsipras’ fighting spirit has been sapped over the past few weeks and on Friday the Greek Parliament passed a series of harsh austerity measures ordered by creditors.
Tsipras is clearly bending the knee to the Eurogroup now, making the ECB payment much more likely.
But arguably it would be better for Greece to miss the payment and force the issue, because whether or not the ECB gets paid today we’re no closer to a solution to the country’s debt problems.
Pretty much everyone except Germany now agrees that Greece needs serious debt restructuring. But Germany’s insistence on a harsh and unrealistic repayment schedule means Greece will continue to stagger under the weight of its “unsustainable” debt and likely need another bailout further down the line.
Micheal Hewson, chief market commentator at CMC Markets, sums up the problem well in an email sent to clients on Monday (emphasis his):
It is said that the definition of insanity is doing the same thing over and over and expecting different results, and while the etymology of the quote is long debated the sentiment is sound, particularly in the context of events in Europe over the past few weeks, its treatment of Greece, and its myriad of economic and political problems.
This week discussions are set to begin on a fresh €86bn bailout, after approval was granted on Friday in the German Bundestag. It is hard to see how any new bailout will succeed when the previous two have failed, given the measures the Greeks are having to swallow to get the money.
The lack of any type of conditional debt relief as called for by the IMF, despite a slight softening of position at the weekend by Germany, could well make it much less likely that the IMF will even want to be involved, meaning that any program is much more likely to fail.
For now the agreement of bridging finance of €7bn on Friday would appear to have resolved the previously thorny problem of whether Greece would be able to meet its €3.5bn obligation to the ECB due today, while the increase in ELA to €89.9bn also appears to have brought the prospects of reopening of Greek banks much closer, with some set to reopen today. It remains quite clear though, that far from resolving the Greek problem, European politicians have merely deferred it.