Bank of America Merrill Lynch analysts published a note titled “Grexhaustion” earlier today — and for financial journalists, analysts and investors, it certainly feels that way.
Greece has now been rolling from crisis to crisis for several months, while negotiations with Europe to unlock a €7.2 billion ($US7.83 billion, £5.16 billion) tranche of bailout cash are not progressing at a very fast pace. Little compromise has been made on big issues like labour market regulation, pensions, and privatisation.
Default seems more and more likely. But the big question is: When will Greece actually run out of cash?
First, people worried about the April 9 IMF payment, but Greece made that. Then people worried about April 20, and HSBC mentioned that May 12 could be the crunch point, but many think that the government will manage that payment now that it’s draining more money from local governments.
The timelines would be changed considerably if Greece got a deal — that would simply push things back by a few months — but if it compromise with its European lenders to access the bailout cash at all, when does the money run out? Analysts now seem to be zoning in on late June or July for a possible default.
Credit Suisse is confident that Greece can get past the May deadline, and possibly the June ones too (with a note out April 24).
Greece has shown a clear resilience in recent months, given that no official cash has been disbursed to the country for the past eight months or so. On our calculations, Greece can still survive financially for a few more weeks, and we even believe that the “lifeline” could be stretched until mid-July.
Bank of America analysts are basically in agreement (April 24):
The current Greek drama could easily drag on all the way to the end of June. However, it is hard to see it going on beyond July, given IMF payments due, unless there is a substantial change in the current positions of Athens and its creditors.
Oxford Economics analysts are a little broader in their estimates (made April 10).
In the absence of agreement, [a missed payment] is likely to occur in June or July, but could be as early as May, or as late as August. In the meantime, the ECB appears willing to accommodate the political process and its ELA exposures to Greece to increase steadily.
Citi saw the end of June as a potential deadline in this note (April 17):
Unless the government can receive some cash from the bailout fund and/or the repatriation of SMP profits, it would likely be unable to meet all of its IMF financial obligations worth €1.7bn in June.
And here’s UBS’ global macro team, (also on April 17):
It seems doubtful whether these efforts will be sufficient to avoid payment difficulties in May, let alone June. But in any event, the very large redemptions in July and August appear impossible to manage in the absence of a deal between the government and its international partners.
So it seems fair to say that the consensus is that Greece will make it past the May IMF payment due to some accounting wheezes and fiscal barrel-scraping. It may make to to the end of July or even into July (assuming no deal is done) — but no further than that, given that big payments are due in August too.
There are some problems with that. For example, if the government can’t scramble the cash it’s demanding from local governments and state utilities fast enough. Greek newspaper Kathimerini reported that though the state expected €1.5-2 billion to be collected, the actual amount comes closer to €450 million so far.
If that money can’t be found, the earlier potential default dates might be more accurate.
But, that’s not everyone’s view. The wonks over at Bruegel note that as of September 2014 Greece had the seventh largest holdings of financial assets of any of the 28 EU nations. That data isn’t current, but it still suggests Greece could potentially get hold of a lot more money than it would immediately appear.
Emmanuel Schizas also has a fascinating take that suggests Greece could make it through the whole year if it reins in enough spending. It’s already doing this by failing to make payments due to the private sector (which the country has a rich history of doing).
The bottom line is, behind the scenes the Greek government should be drawing up a list of the people it can afford to piss off for a couple of months, and who can afford to wait. If it manages to draw on suppliers and state employees for the credit to see it through July, and if it manages to control spending thereafter despite its pre-election promises, it just might scrape by the rest of the year.
The main point is that it’s partly down to the Greek government — some rapid privatisations (which Syriza oppose) could free up a lot of money, and if they don’t mind not paying people for months on end, they could even last for much longer than an investment bank analyst is expecting.
Though the people not getting paid may have something to say about that.
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