The vow by the new Greek prime minister to let his country’s €172bn bailout expire at the end of the month has left officials in Brussels and other capitals fretting that Athens and its creditors are stuck in a dialogue of the deaf with time running out.
In his maiden speech to parliament as premier, Alexis Tsipras said instead of extending the current bailout, he would seek a “bridge agreement” to tide the country over until a new longer-term bailout is hammered out. But eurozone officials are adamant no such bridge exists.
Several days of meetings between Yanis Varoufakis, the new Greek finance minister, and his eurozone colleagues, have established little common ground. And officials are worried that two meetings of eurozone finance ministers and a summit of EU leaders within the next 10 days will pass without any real negotiations taking place.
Mr Varoufakis’s first meeting with his 18 eurozone counterparts on Wednesday is likely to be a difficult occasion.
Q: How urgent is the risk to Greece?
Many eurozone officials believe the risks are very urgent and have pushed Mr Varoufakis, who originally talked of proposing a new rescue “contract” in March that would be agreed before June, to stop thinking in months and start thinking in days.
The most immediate risk is that the Greek government simply runs out of money. Before the recent turmoil, most officials thought Athens could make it until June — when a big €3.5bn bond falls due — before facing a cash crunch.
But many officials now worry that new spending commitments made by Mr Tsipras, plus the sudden collapse in Greek tax revenues, has brought forward the day of reckoning to March, when a €1.4bn payment is owed to the International Monetary Fund. With no way to raise cash on the capital markets, and no bailout financing in place, Athens could literally go bust. A developed country defaulting on an IMF payment would be unprecedented.
Of equal concern is the Greek banking system. Instability surrounding last month’s elections saw massive withdrawals from Greek banks, sparking concerns of a bank run. Those withdrawals slowed last week, but without a bailout in place, there are fears they could begin anew. The European Central Bank is limited in how much help it can provide Greek banks in the case of a run, especially with Athens outside a bailout structure.
Q: Without a bailout in place, how can Athens find a “bridge” until June?
The options for Greece are very limited, and even those possible options are progressively being shut off by eurozone institutions.
One way to quickly raise funds would be to issue short-term debt through treasury bills. Under the current bailout programme, however, there is a €15bn ceiling on the amount of T-bills Greece can issue, and the ECB, which administers the cap, has clearly signalled it will not lift it.
Once Greece is out of the bailout, the ECB’s control becomes less direct. But it remains unclear who would purchase any newly issued T-bills. Greece’s last T-bill auction went badly, and the natural purchasers would be Greek banks. But the ECB, which now serves as supervisor of all major eurozone banks, has sent word it does not want Greek banks loading up on T-bills.
In addition, the main reason Greek banks would purchase T-bills is to use them as collateral for cheap loans from the ECB. But the ECB has put a €3.5bn limit on the amount of T-bills it will accept, and Greek banks are almost at that limit, making it an unattractive investment.
Q: What about a simple bridge loan?
This would seem an obvious and simple solution, but no such thing exists in the eurozone arsenal. The European Stability Mechanism, the eurozone’s new €500bn bailout fund, can fund full-scale bailouts, bank recapitalisation programmes and even purchase sovereign bonds on the open market. But it has no tool to offer a short-term loan.
Besides, given demands from Berlin and elsewhere for Athens to stick to its bailout commitments, it is unlikely a bridge loan — even if it existed — would come without tough conditions akin to the current bailout.
Q: Is there other cash Athens can scrape together?
One pot of funds that Mr Varoufakis has targeted is about €1.8bn in profits the ECB made when it purchased Greek bonds in 2010 as part of a massive effort to shore up eurozone debt markets at the outset of the crisis.
In 2012, eurozone officials agreed that these profits, which include bonds purchased by national central banks as well as the ECB, should be returned to Athens since it was not really proper for central banks to be making profits from monetary policy.
Although Mr Varoufakis has insisted those funds are “our money”, eurozone officials said the agreement has long been that the bond profits would only be distributed along with the normal bailout tranches after Greece clears its quarterly bailout reviews. No bailout, no bond profits.