Tuesday

26th May 2020

Is Greece about to default?

  • Greece used emergency funds to repay the IMF (Photo: flatcap2009)

Only a few hours after a Eurogroup meeting which hat-tipped progress in Greece bailout talks, Athens appears to be on the edge of bankruptcy.

The Greek government said on Monday it would repay a €750 million tranche of International monetary fund (IMF) loans. But it emerged, on Tuesday (12 May), that it used €650 million from an IMF emergency account and €100 million from domestic a cash reserve to honour the deadline.

Read and decide

Join EUobserver today

Support quality EU news

Get instant access to all articles — and 20 years of archives. 14-day free trial.

... or subscribe as a group

Does it mean Greece is closer than ever to defaulting?


"The liquidity situation is a terribly urgent one," Greek finance minister Yanis Varoufakis told reporters after Monday’s Eurogroup meeting.

He added that "we’re talking about the next couple of weeks" before “liquidity constraints become binding".

The IMF payment done, other repayment deadlines, worth €3 billion in total, loom in May.

A €1.4 billion repayment of treasury bonds is due on 15 May.

This could be offset by a new bond issue, something Greece already did in preceding months. But the holders and buyers of the bonds are almost all Greek banks and the money comes from Greece itself.

On 6 May, the European Central Bank raised the cap on emergency liquidity assistance, allowing Greek banks to draw €2 billion more from the Greek central bank in order to buy the state papers.

On 12 May the ECB raised the cap again by €1.1 billion to €80 billion.

More problematic is payment of pensions and (half of) public sector salaries on Wednesday (13 May), as well as the second half of the salaries at the end of May.

Pensions and salaries cost the Greek state about €1.6 billion a month.

But the government in late April got its hands on €600 million when it ordered local authorities and public bodies to transfer cash to Athens.

When or if the deadlines are met, Greece will have reached the end of two-week period mentioned by Varoufakis before “liquidity constraints become binding".

At this point the need for a deal with Greece’s creditors, to unblock the €7.2 billion left in its bailout programme, will become acute.

The risk of a Greek default, and its potential eurozone exit, has hung over the bailout talks ever since prime minister Alexis Tsipras and his far-left Syriza party came to power in January.

But with both sides trying to use the threat of default to spook each other, it’s hard to assess the real danger.

Even EU officials say they don’t know the real financial situation in Greece.

The situation prompted German finance minister Wolfgang Schaeuble, last week, to warn of a default by accident, telling the Frankfurter Allgemeine Sonntagszeitung newspaper that “experience elsewhere in the world has shown that a country can suddenly become unable to pay its bills”.

At the same time, a top EU official said "when a country wants to pay, it finds the way to do it", in a statement which calmed nerves.

Meanwhile, in Athens, people are trying to decipher what Varoufakis means when he says "binding liquidity constraints".

“This would not be a kind of default. Maybe we’ll have difficulties to manage public cash," a Greek official told EUobserver.

In a recent analysis for the Bruegel think-tank, economist Zsolt Darvas also estimated Greece will be able to meet its financial obligations "at least perhaps till the summer".

"Given the huge stock of financial assets the Greek government has, I am always cautious about reports that it will soon run out of cash," he said.

Darvas noted that "at the end of September 2014, the Greek government had assets worth €86.6 billion”. He said that even if "assets have most likely been depleted significantly during the past six months", the government still has plenty left to sell.

His analysis assumes that a deal will be reached before the end of the current bailout programme, on 30 June.

But it also implies there’s unlikely to be a bank run, panic on financial markets, or an accidental euro-exit even if talks drag on.

In the worst-case scenario, Greece might have to impose capital controls.

Varoufakis ruled out this possibility on Monday, on grounds that "capital controls and the monetary union are a contradiction in terms".

But capital controls were put in place in Cyprus after its two main banks collapsed in 2013 and were fully lifted only last month.

Eurogroup keeps alive hope of Greek deal

Eurozone finance ministers on Monday welcomed progress in talks between Greece and its lenders but could not say when a deal will be possible.

Greece raids public sector coffers to pay pensions

The Greek government is forcing the transfer of public sector money to the central bank so it can pay pensions and salaries as the impasse with its international creditors continues.

Leaked Juncker plan seeks to avoid Greek default

According to Greek daily To Vima, European Commission president Juncker sent a memo to the Greek government and its creditors proposing to unblock money before a final agreement is found.

No outcome from Greece talks in Riga

A two-hour meeting between the leaders of Germany, France, and Greece in Riga produced no tangible outcome on the Greek debt crisis.

News in Brief

  1. Johnson: Shops in UK will reopen on 15 June
  2. German doctors: Summer holidays could cause second wave
  3. EU forced to choose between China and US: Borrell
  4. Spain to lift two-week arrival quarantine from July
  5. Germany gives Lufthansa €9bn bailout for equity stake
  6. Volkswagen ordered to pay in landmark 'dieselgate' case
  7. 40 million health workers urge more G20 investment
  8. Jourova: Budget rule-of-law link 'more needed than ever'

Coronavirus

ECB promises (almost) whatever it takes

The eurozone's central bank has promised to buy up to €750bn of government and private bonds in new pandemic counter-measures.

Opinion

What does coronavirus 'Black Swan' mean for markets?

Falling demand and prices for oil and raw materials will revive the risk of deflation. The collapse in international trade and long-term rethinking of China's role as the major hub for the production of consumer goods and electronics is inevitable.

Stakeholders' Highlights

  1. European Sustainable Energy WeekThis year’s EU Sustainable Energy Week (EUSEW) will be held digitally!
  2. Nordic Council of MinistersNordic states are fighting to protect gender equality during corona crisis
  3. UNESDACircularity works, let’s all give it a chance
  4. Nordic Council of MinistersNordic ministers call for post-corona synergies between economic recovery and green transition
  5. Nordic Council of MinistersNordic co-operation on COVID-19
  6. Nordic Council of MinistersNordic research collaboration on pandemics

Latest News

  1. How Kaczyński ruined Poland, judges tell MEPs
  2. EU data protection rules abused to censor media
  3. Draft EU 'green recovery' plan amid clash over natural gas
  4. Clock is ticking: 300,000 vs 3.3m Covid-19 Africa deaths?
  5. Recovery plans unveiled This WEEK
  6. EU and UK stumbling into Irish border crisis
  7. Malta patrol boat 'intimidates' capsized migrants
  8. How coronavirus might hit EU defence spending

Stakeholders' Highlights

  1. UNESDAMaking Europe’s Economy Circular – the time is now
  2. Nordic Council of MinistersScottish parliament seeks closer collaboration with the Nordic Council
  3. UNESDAFrom Linear to Circular – check out UNESDA's new blog
  4. Nordic Council of Ministers40 years of experience have proven its point: Sustainable financing actually works
  5. Nordic Council of MinistersNordic and Baltic ministers paving the way for 5G in the region
  6. Nordic Council of MinistersEarmarked paternity leave – an effective way to change norms

Join EUobserver

Support quality EU news

Join us