A brief update on the negotiations between Greece and its creditors.
A number of Greek officials seemed to regard it getting at least some funds approved by the Eurogroup at its May 11 meeting as critical to being able to make a €750 million payment to the IMF on May 12. But on Thursday, Finance Minister Yanis Varuofakis said Greece will be able to meet that obligation, se we’ll assume that yet again the government has managed somehow to stump up the needed funds.
But while that move in theory buys the government more time, in practice, it’s not clear what the point is, given the following:
The two sides remain hopelessly at odds. The only progress has been on “shape of the table” issues. As the Financial Times notes:
Some officials on both sides of the talks had hoped that Monday’s meeting would at least produce a statement endorsing their progress but even that low bar appears out of reach.
With such an endorsement, Athens hoped the European Central Bank would be persuaded to increase its cap on the amount of short-term debt the government could issue — a key relief valve that would have eased, at least temporarily, the government’s cash crunch. But no such relief is now expected.
The Greek government continues to take steps to maintain support at home, such as rehiring 4000 government workers, in defiance of the previously-agreed “reforms”. While the number of employees involved is sufficiently small as to qualify as a symbolic gesture rather than one with any real economic impact, Greece’s critics can use it to argue that there’s no reason to trust them, that if the creditors give them new funds or restructure debt, the lenders have every reason to doubt that Greece will live up to any commitments it makes.
The new drop-dead date is in theory late May, which probably really means mid June. Greece has pushed back the apparent day of reckoning by a bit more than a month. Again from the Financial Times:
The current bailout ends in June and officials are starting to examine the calendar to figure out the drop-dead moment a deal must be reached to have enough time to clear all the prerequisites for a payment to reach Athens by June 30…
Most officials believe the last week of May would be the best-case scenario, leaving a full month for eurozone parliaments — including the increasingly hostile German Bundestag — to approve the deal and for Greece to pass and implement new laws.
We found with the February negotiations that the participants were able to compress the timetable and at least one country that was thought to have to get Parliamentary approval (Finland) decided that it could skip that. But an actual disbursement of funds is a bigger matter, so it’s doubtful that any government will try to finesse legislative approval this time. So I’d guesstimate that the real cutoff date is somewhere between June 14 and June 20.
Greece remains in the sweatbox. Remember that Greece no longer has a primary surplus, and has been scraping the bottom of the barrel to make payments to its creditors. Moreover, it was already delaying domestic payments. With revenues less than regular outlays, meeting its obligations to domestic payees, like government employees and vendors, is going to be a strain. Moreover, the withheld and delayed payments will apply more downward pressure on an already depressed economy. The government is having to impose austerity merely to continue in the negotiations. Will the ruling coalition’s approval ratings deteriorate further as the squeeze continues?
As Herbert Stein said, “Things that can’t continue, won’t”. But that dictum gives no guidance as to how long it take before the break finally occurs. Greece has managed to hold on for far longer than its officials led outsiders to believe, but it can’t make the payments due to the ECB in July and August without coming to a deal. Unless one side blinks, that seems as remote as ever.