As Europe Closes Doors, A Grinding Arithmetic Pushes Greece to the Brink

In the two arduous months since Syriza won the Greek elections on a platform to renegotiate the country’s debt and end the austerity imposed from abroad, much noise has been generated but seemingly little has been achieved.

A more constructive view might be that the range of possible outcomes is narrowing as crunch time approaches. Prime Minister Alexis Tsipras has proven wrong the pessimists who predicted the country’s exit from the euro. Leaders, in private at least, realise all too well that a Greek default and/or exit from the eurozone would seriously dent the European project at a time when Russia is trying to increase its influence. It would also bring large losses for creditors, including the European Central Bank, national governments and banks.

There have even been some modest gains for Greece such as the increase in the amount the ECB will lend to Greek banks to €71 billion and the halving of a target to have the government’s books in surplus.

Despite this progress, the wheels of fiscal arithmetic grind away, eroding Syriza’s negotiating position as the bills come due. Its European creditors know this and seem to be holding the line, insisting that Greece can and should repay the principal and interest it owes private and official creditors. Even President Francois Hollande, who initially supported a possible debt restructuring, has fallen in line with Berlin’s uncompromising stance. The Spanish and Portuguese prime ministers — watchful of their own electoral positions should Greece succeed and emboldened by the European Central Bank’s promise to lend them money through quantitative easing plans — are clear that Greece should not benefit from further concessions, lest it creates a dangerous or unfair precedent.

payments will push Athens to the brink because Europe has closed off a number of avenues of financing

The purpose of this article is not to rule on who is right and who is wrong, but to shine a light on those cold numbers that mean that Syriza will either have to ignore the will of the Greek people or default on its loans and trigger a chain of events that few can really predict.

The government is already scraping the bottom of the barrel. It has been forced to raid the cash reserves from state institutions to help pay for end-month wages and pensions estimated at €1.7 billion.

It faces principal debt repayments of about €3 billion in April, including a €460 million payment to the IMF on the 9th April (it owes the IMF about €31 billion), and €1.4 billion on the 14th of April and a further €1 billion on the 17th April for six month loans taken out previously.

These payments will push Athens to the brink because Europe has closed off to the Greek government a number of avenues of financing. The ECB has recently imposed a legally binding cap on the amount of short-term loans Greek banks can make to the government to pay its bills. European finance ministers have refused to allow Greece to make use of a €1.2 billion fund that had been used previously to support its banks.

This means Athens is now increasingly reliant on a €7.2 billion bailout that Europe has made conditional on Greece sticking to austerity.

That’s why Syriza has been gradually scaling back its pre-electoral promises. It accepted a four month extension to the current lending program and it has just put the finishing touches to a package of measures to raise €3 billion that includes a crackdown on tax evasion, higher taxes for top earners, an overhaul of VAT, re-launching its privatisation program, taxes on booze and cigarettes and further labour market reforms.

Of course, not a cent gets paid out until the bailout inspectors give the green light which is unlikely to come until they have hard evidence that the program is being implemented.

That gets you through April. Then comes the real pain.

The government has to repay debts of about €3.6 billion in May, while payments in June at July will reach €12.7 billion.

By then, and if Tsipras continues to tow the Brussels line, the ECB may be allowed to replenish it holdings of Greek bonds (ie. lend money) through its Quantitative Easing programme. That would likely push down the interest rates that Athens can borrow at and help it through to the end 2015 by which time a whopping €39 billion will have been repaid. If Tsipras can make it through this year, 2016 will look a lot more manageable when €6 billion is due to be repaid.

This where we are: Berlin turns the screw and Athens yields. The question now is whether Greece continues to bend or whether the whole thing goes snap.

Olivier Desbarres is an independent economic commentator. You can read more of his work here.

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