Currency Analyst since 2010

Greece is in danger of default… again

   Elizaveta Belugina

After the euro area finance ministers have decided to extend Greek bailout program by 4 months, the nation has briefly left the spotlight and the market’s attention switched to other problems. However, traders may hear from Greece sooner than they expect to and it looks like the news won’t be good.

The problem is that in the coming weeks Greece has to repay some of its debt, but it actually lacks cash to do that.

According to Bloomberg, Greek government has to refinance or repay about 6.5 billion euro of debt and interest in the next 3 weeks. The nation has to make a 1.5 billion repayment of its loans to the International Monetary fund this month staring with a 300-million payment this Friday.

At the same time, Greece is as low on liquidity as ever. The nation’s expected to have a 2.1 billion cash deficit in March. It already had a 217-million-euro cash shortfall in January as tax revenues turned out to be too low.

So far Greek government has been covering its cash deficit by tapping the reserves of public entities such as pension funds, hospitals, and universities, and rolling over treasury bills. However, Greek banks’ exposure to treasury bills has already reached the debt issuance limit, so further short-term debt needs the ECB’s approval.

Greece is craving cash, but it’s difficult for it to find additional money. The nation is shut out of financial markets, so it’s only hope are the loans from the euro area and the IMF. Yet, the European creditors don’t want to disburse the 7-billion-euro bailout tranche until the government of Alexis Tsipras meets economic reform targets. It looks like Athens won’t receive bailout cash until April.

The number of options available to Greece to avoid default is getting smaller and smaller. The nation’s government may decide to delay fulfilling its obligations to the IMF becoming the first advanced economy to do so in 70 years.

The situation is even worse as Greek GDP shrank in the in the last quarter of last year after nine months of growth, manufacturing activity is contracting and commercial banks continue losing deposits. So, even if Greece manages to repay its debts in March without the aid tranche, its economy will be severely hit. Plus whatever the nation does in the short term, it won’t solve the problem of keeping Greece afloat after the current bailout program ends in June.

Greek problems are here to stay and to torture the euro for a long time. In the near term, all eyes will be on the ECB: will the central bank decide to help Greece? It can lift the borrowing limits for Athens or transfer it 1.9-billion profits, which the ECB has accumulated in the interest payments made from holding Greek bonds.

Greece's debt repayment schedule

Source: IMF, Datastream

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