Greek finance minister Yanis Varoufakis, right, and French counterpart Michel Sapin
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There have been so many “make-or-break” moments for Athens since Greece’s debt crisis first shook markets five years ago,that it is difficult to know when things might really break.

But this much is clear: unless Greece and its international creditors agree a deal soon to close out the country’s €172bn bailout, and then quickly agree another rescue, Athens is likely to run out of money and default on its debts. That would push it perilously close to crashing out of the eurozone.

With just seven weeks remaining before Greece’s current rescue runs out, it is unclear who might blink first.

Will Athens bow to pressure and accept tough new economic reforms to release the remaining €7.2bn in the programme and refill its dwindling coffers? Or will Greece’s increasingly divided creditors succumb to fears over “Grexit” and give Athens a pass?

The next week . . . 

Officials had been eying next week as a potential capitulation date. All 19 eurozone finance ministers are due to gather in Brussels on Monday for their monthly eurogroup meeting, where bailout deals are normally brokered. The next day, Greece is due to make a €750m loan repayment to the International Monetary Fund.

Several factors have conspired against a deal next week. For one thing, Greece appears to have once again scraped together enough cash to stave off the day of reckoning. Asked on Thursday if the fund payment would be made, Yanis Varoufakis, the Greek finance minister, said: “Of course we want to pay the IMF. We intend to pay every creditor.”

Meanwhile, progress in bailout talks remains sluggish. Officials involved in the negotiations say the atmosphere has improved: negotiators are now engaged on substantive differences, rather than battling over logistics such as who will attend.

But there has been no real narrowing of differences. 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 next month . . . 

With no agreement imminent, the deadline becomes more nebulous. 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.

“Calculating backwards from end-June, when the programme is over, we need [time] for repeated national [approval] procedures, Greek implementation, a compliance report and then the preparation of disbursements,” said one senior official involved in the talks.

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.

Can a deal be reached by then? The differences over the main stumbling points — pension cuts, labour market liberalisation, value added tax increases — remain just as wide as they were when the stand-off began three months ago.

And Greece’s insistence that the talks be held in Brussels rather than Athens has complicated the task. The full team of Greek finance ministry experts did not even arrive in the Belgian capital until Monday, say officials.

And beyond . . . 

The dark cloud looming over the current negotiations is that even if a deal is reached, the most difficult task still lies ahead: agreeing yet another bailout.

The €7.2bn remaining in the current rescue programme is intended to refill Athens’ empty coffers, pay off arrears, and ensure all debts due through June are met.

But it was never intended to pay off the €6.7bn that Greece is due to pay in July and August on bonds held by the ECB. For that, and all future debts and deficitsm a third bailout will be needed. Luis de Guindos, the Spanish finance minister, has estimated that it could be as much as €30bn-€50bn.

Those estimates were made before recent downgrades in Greek economic forecasts, which many officials believe will see a return to deficits and skyrocketing debt. That, in turn, has prompted the IMF to raise the question of whether eurozone lenders need to write down their bailout loans.

“The third programme will be immeasurably more difficult to negotiate than the current review,” said Mujtaba Rahman, head of European analysis at the Eurasia Group risk consultancy. “We are talking about more money, so more reform, more domestic political blowback, and all in a very tight timeframe.”

Unless the eurozone wants to play with the same fire that nearly caused a full-scale Greek bank run in February — the last time Greece was nearly left without the cover of an EU bailout — a new rescue must also be agreed by the end of June. Two deals in seven weeks. The make-or-break moment may be here.

Copyright The Financial Times Limited 2017. All rights reserved.
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