20 Apr 2015

Greek cash call before critical Eurogroup

The Greek government today ordered all state bodies to place their cash reserves in the country’s central bank, the Bank of Greece. The move was justified by “extremely urgent and unforeseen needs”, as the decree said. To put it bluntly, Athens is running out of cash.


After a flurry of transatlantic diplomacy, which saw leading lights of Syriza press flesh with President Obama, alongside dire warnings of imminent doom by the IMF, here’s my understanding of where negotiations are between Greece and its lenders.

Greek negotiators are working through detailed objections with the former-Troika officials, in the so called Brussels Group.  I understand there is agreement on:

a) the proposed fiscal target for 2015-16, which will be 1.2-1.5% of GDP

b) the Greeks’ proposed revenue raising measures – though the Euro side does not agree with the Greeks over exactly how effective these will be

However there were three areas of disagreement goign into the talks that resumed this weekend:

i) The Greek government believes this is now agreed in principle – that the revenue targets required by the lenders can be hit by public-private partnerships rather than the fire-sale selloffs required under the original Troika programme.

ii) Labour market reform

iii) The pension system.

These last two are currently under discussion, with little or no progress to date.

While both IMF and German officials have briefed the press over the weekend that no progress is likely towards the  release of the €7bn bailout tranche owed to Greece, I understand the Greek side sees the Eurogroup 24 April as critical for addressing the current liquidity crunch of the Greek state.

If the Eurogroup were to signal progress, and that discussions are on track towards an agreement, it would allow the European Central Bank – Athens hopes – to end rationing of credit lines the Greek government.

Rather than lifting the ceiling on Emergency Lending Assistance to the Greek banks, I understand the crucial short term measure being sought by Athens is lifting the cap on the number of short term IOUs (known as T-bills) the Greek governemnt can sell to its own banks.

However, that – plus the cash transferred from local government to the central bank – only gets you to mid-May, when the Greeks have to repay 1bn euros to the IMF.

While the Riga Eurogroup meeting on Friday is not the last chance Greece has to be rescued, it is probably the last chance for it to achieve a result outside of crisis measures, such as short-term capital controls to stop money leaving the country, or delays to loan repayments.

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