Greek Finance Minister Yanis Varoufakis writes that Greece won’t go under but he’s in a small minority of those who believe it, world press reports say.
Only a Miracle Can Save Greece From Disaster
Fortune – Nicholas Economides
The new leftist Greek government is running out of cash fast. Elected on the promise to disburse large amounts to those hurt by austerity, it cannot even pay the regular obligations of the State.
Within two to four weeks, Greece will not be able to pay salaries, pensions and loan obligations to the International Monetary Fund and other lenders. The clock is ticking and time is running out. Greece must grasp the only lifeline left and negotiate with creditors now to save itself.
By the middle of May, Greece will need to refinance $3 billion of its Treasury bills. Typically, Greek banks buy most T-bills, but the European Central Bank has placed restrictions on these purchases.
As a result, Greece is faced with the burden of covering $756 million worth of new T-bills, as well as repay $836 million to the International Monetary Fund (IMF) on May 11. That’s a total of about $1.6 billion, which doesn’t include paying salaries, pensions and other government expenses.
Greece also faces a significant shortfall of tax revenue since many Greeks expected the government to reduce, forgive or postpone tax obligations.
With very little reserves to save the country from bankruptcy, the government has forcibly appropriated the cash reserves of pension funds, municipalities and agricultural subsidies in transit.
By June 18, Greece would need to spend $4.7 billion, which includes $2.16 billion in T-bills, as well as repaying $2.55 billion to the IMF.
What is the solution? By far, the best solution is for Greece to strike a reasonable deal with its European Union and IMF creditors.
The creditors would provide new cheap financing (present EU/IMF financing is at 1.82% interest rate) and Greece would implement government cuts, restart privatizations, allow competition in closed sectors (such as trucking), and liberalize the labor market to make the economy more competitive.
The present government, Syriza, was elected on a platform that promised exactly the opposite of what is required today. But a sharp U-turn is necessary for Greece not to go bankrupt.
If a deal with the creditors is not struck, one of two scenarios are likely to happen. In the first, “bankruptcy within the Euro” would occur. This is what the government seems to prefer — a situation in which Greece keeps paying salaries and pensions only.
Since it does not pay the external loans, including money it owes the IMF, the country effectively goes bankrupt. Banks would struggle to survive as officials implement measures to keep citizens and investors from pulling their money out of the country.
The ECB will have to decide whether to keep supporting Greek banks in a Eurozone country in default. Eventually, the ECB or Greek government will force the country to adopt a new Drachma.
Big, Big Problems for Greek Debt Deal
Eurogroup head Jeroen Dijsselboem has warned that “big, big problems” need to be solved before any Greece debt deal can be agreed.
He was talking after a strained meeting between eurozone finance ministers and Greek government officials in the Latvian capital of Riga.
Ministers are trying to agree a deal to help Greece meet its debt repayments.
It must repay its creditors nearly €1bn (£720m) next month, and is struggling to raise the money.
Earlier this week, the government asked its public sector bodies to hand over any reserve cash to help make the payment.
Athens is also keen to secure the next tranche of funds from its main creditors – the European Union, the European Central Bank and the International Monetary Fund – totalling €7.2bn.
“It was a very critical discussion,” said Mr Dijsselbloem after the talks ended with little sign of progress.
“A comprehensive and detailed list of reforms is needed… and a comprehensive deal is necessary before any disbursement can take place. We are all aware that time is running out.”
Similar frustrations were expressed by the European Commissioner for the euro, Valdis Dombrovskis.
“Progress in technical negotiations has not been sufficient to reach any conclusion during this Eurogroup here in Riga,” he said.
Eurozone ministers are waiting for Athens to present a detailed package of economic reforms to improve the country’s finances, which they have made a condition of further support.
Greek Finance Minister Yanis Varoufakis moved to calm fears that a deal may not be concluded quick enough by focusing on the positive.
“We agreed that an agreement will be difficult but it will happen and it will happen quickly because that is the only option we have,” he said.
Greece Needs New Deal
The Guardian – Yanis Varoufakis
Three months of negotiations between the Greek government and our European and international partners have brought about much convergence on the steps needed to overcome years of economic crisis and to bring about sustained recovery in Greece.
But they have not yet produced a deal. Why? What steps are needed to produce a viable, mutually agreed reform agenda? …
We and our partners already agree on much. Greece’s tax system needs to be revamped, and the revenue authorities must be freed from political and corporate influence. The pension system is ailing. The economy’s credit circuits are broken.
The labor market has been devastated by the crisis and is deeply segmented, with productivity growth stalled. Public administration is in urgent need of modernization, and public resources must be used more efficiently.
Overwhelming obstacles block the formation of new companies. Competition in product markets is far too circumscribed. And inequality has reached outrageous levels, preventing society from uniting behind essential reforms.
Our government’s position is that backward induction should be ditched. Instead, we should map out a forward-looking plan based on reasonable assumptions about the primary surpluses consistent with the rates of output growth, net investment, and export expansion that can stabilise Greece’s economy and debt ratio.
If this means that the debt-to-GDP ratio will be higher than 120% in 2020, we devise smart ways to rationalise, re-profile, or restructure the debt – keeping in mind the aim of maximising the effective present value that will be returned to Greece’s creditors.
Besides convincing the troika that our debt sustainability analysis should avoid the austerity trap, we must overcome the second hurdle: the “reform trap”.
The previous reform programme, which our partners are so adamant should not be “rolled back” by our government, was founded on internal devaluation, wage and pension cuts, loss of labor protections, and price-maximising privatisation of public assets …
he Greek government wants a fiscal consolidation path that makes sense, and we want reforms that all sides believe are important. Our task is to convince our partners that our undertakings are strategic, rather than tactical, and that our logic is sound. Their task is to let go of an approach that has failed.
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