Whichever way Greece’s new coalition government turns, it’s finding out that there’s not enough money to do what it promised while burning through its cash, world press reports say.
EU Turns Up The Pressure, Greek Cash Running Out
The Independent – Ben Chu
More pressure has been heaped upon Athens, as reports suggested the European Central Bank is looking at placing greater restrictions on the use of its emergency lending facilities by Greece’s domestic banks.
Greek banks have tapped around €74bn (£53bn) in emergency liquidity assistance from the ECB to replace the deposits that nervous domestic savers have pulled out of the financial system in recent months. Without that lifeline, the country’s banks would rapidly collapse.
Greek financial stocks duly sold off heavily after the report emerged that the ECB is considering increasing the interest rate – or “haircut” – on their ELA borrowing, with the banking index shedding 5.5 per cent.
Greece’s three-year borrowing costs also jumped to just shy of 30 per cent, reflecting rising concerns about the solvency of the country’s banking system and the lack of progress towards a deal between Athens and its eurozone creditors.
Greece needs a €7.2bn bailout from its partners in order to service its maturing debts and to carry on paying public sector workers. It also needs to make an €800m payment to the International Monetary Fund early next month.
Eurozone officials were playing down expectations of any deal being concluded on Friday, when finance ministers meet in Riga. Financial markets are showing increasing signs of concern over the possibility that Greece could run out of money and default on its debt. This could rapidly lead to its exit from the single currency.
Greece Running Out of Money, Debt Deal Hopes Fade
The Guardian – Larry Elliott and Helena Smith
The head of the Eurogroup of finance ministers has said Greece is running out of money as hopes of a deal to end the country’s worsening debt crisis by the end of this week have again been dashed.
Sources in Brussels said there was no prospect of concluding negotiations between the Syriza-led coalition in Athens and its creditors by the time the 18 finance ministers meet in Riga at the end of this week.
On a fresh day of turmoil, Greek shares and bonds came under heavy selling pressure and local authorities reacted furiously to the sequestering of their spare funds by the central bank in order to pay the day-to-day bills of the central government.
Jeroen Dijsselbloem, the Dutch finance minister and leader of the Eurogroup, said he still expected a deal to be struck in the coming weeks and that it was in the interests of the eurozone for Greece to remain in the currency bloc.
Brussels wants Greece to agree to stick broadly to deeply unpopular economic policies in return for receiving fresh financial support worth more than €7bn, which would allow it to avoid defaulting on debt repayments. Talks with Athens, however, have proved difficult.
If Greece leaves the eurozone “you get very dangerous instability,” Dijsselbloem told the broadcaster RTL. “It’s in the interests of Greece and the eurozone as a whole to avoid that.”
“The money is starting to run out,” he added.
Financial markets were rattled by reports that the European Central Bank was losing patience with Athens and preparing to limit the help it has been providing to keep Greek banks afloat. Interest rates on five-year Greek bonds, seen as a benchmark of investor confidence, rose to record highs and are at levels that signal expectations of a debt default or writedown. The Greek stock market closed more than 3% down, at its lowest level since 2012.
Eirini Tsekeridou, a fixed income analyst at Julius Baer, said: “We still believe that in the end, the Greek government will agree to the terms of the creditors regarding taxes, pensions, privatisations etc in order for the next tranche of €7.2bn to be released.
“Although we regard a Greek exit from the eurozone as unlikely and with limited contagion risk towards the rest of the eurozone, we avoid holding Greek debt at this juncture due to the high political instability.”
Mythology That Blocks Greece’s Progress
The Financial Times – Martin Wolf
The Greek epic continues. It will not end well if the people involved do not recognise they are clinging on to myths. Here are six, each of which poses intellectual and emotional obstacles to reaching a solution.
A Greek exit would help the eurozone. “Will no one rid me of this turbulent priest?” This is the question Henry II is supposed to have asked about Archbishop Thomas Becket. Wolfgang Schäuble, Germany’s finance minister, must think much the same of his Greek partners.
For the English king, however, the gratification of his wish was a disaster. A similar thing is likely to be true if Greece leaves.
Yes, if Greece suffered a calamitous aftermath, populist campaigns elsewhere would be less effective. But euro membership would cease to be irrevocable. Each crisis could trigger destabilising speculation.
A Greek exit would help Greece. Many believe a weak new drachma offers a painless path to prosperity. But this is only likely to be true if the economy can easily expand its production of internationally competitive goods and services. Greece cannot.
And the immediate consequences are likely to include exchange controls, defaults, a halt to foreign credit, and more political turbulence. Stable money counts for something, particularly in a mismanaged country. Ditching it carries a cost.
It is Greece’s fault. Nobody was forced to lend to Greece. Initially, private lenders were happy to lend to the Greek government on much the same terms as to the German government.
The Greeks will repay. This myth derives partly from the refusal to recognise sunk costs. The bad lending and the adjustment to the cessation of that lending both lie in the past.
What is open is whether the Greeks will devote the next few decades to repaying a mountain of loans that should never have been made.
Default entails a Greek exit. A sixth myth is that if Greece defaults, it would have to create a new currency and so leave the eurozone.
It is possible that if the Greek government defaulted, Greek banks would no longer be deemed eligible for Emergency Lending Assistance from the Greek central bank.
If such an agreement could not be reached, the least bad outcome might be to accept the reality of default and leave Greece to decide what to do. That would surely be a bad outcome. But who is now confident of a better one?
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