Greece needs to make some payments in April. For a corporation like Apple, cash in these amounts would be a rounding error on the balance sheet. For the country of Greece, it’s becoming an insurmountable obstacle. That’s how broke Greece is.
No more than €462 million is due the IMF on April 9. A few days later, €1.4 billion in T-bills come due, and in a few more days, another €1 billion in T-bills. Then on May 1, Greece needs to pay the IMF €202 million in interest. In total, Greece has to scrape together a little over €3 billion this month.
But it won’t be able to make even that first payment to the IMF. Not unless it skips paying salaries and social security. To make both payments, it needs new money from the Eurozone “institutions,” as the Troika is now called – that is, from taxpayers in other countries.
But that deal is hung up after the Syriza government has done everything in its power to alienate and confuse even its most ardent supporters in the Eurozone.
Complicating the issue is that it’s the IMF that’s first in line. If Greece fails to pay the IMF on April 9, it would have a one-month grace period. Then the IMF’s executive board would declare Greece to be in default. No developed country has ever dared to default on debt owed the IMF. And things might get hairy very quickly.
That default on IMF debt would constitute an event of default for the European bailout fund, the EFSF, which under the provisions could cancel its loan facilities and declare the principal amounts due immediately, according to Bank of America. This would then cascade out from there into a massive default.
So Greece is preparing for the next step apparently. That’s what “sources close to the ruling Syriza party” told the Telegraph. And this leak too could be part of the game the government has been playing to stiff its creditors out of even more money.
“We are a left-wing government,” an unnamed senior official told the Telegraph. “If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer.” In other words, those salary and social security payments will be made one way or the other.
“We may have to go into a silent arrears process with the IMF,” the source said. “This will cause a furor in the markets and means that the clock will start to tick much faster.”
That elegant phrase – “cause a furor in the markets” – I’ll get back to it in a minute.
“They want to put us through the ritual of humiliation and force us into sequestration,” the source said. “They are trying to put us in a position where we either have to default to our own people or sign up to a deal that is politically toxic for us. If that is their objective, they will have to do it without us.”
“We will shut down the banks and nationalize them, and then issue IOUs if we have to, and we all know what this means,” the source said.
What this means is that the government is now preparing plans to revive the drachma and. It’s preparing to exit the Eurozone.
“What we will not do is become a protectorate of the EU,” the source said.
“They want us to impose capital controls and cause a credit crunch, until the government becomes so unpopular that it falls,” he said. “They want to make an example of us, and demonstrate that no government in the Eurozone has a right to have a mind of its own. They don’t believe that we will walk away, or that the Greek people will back us, and they are wrong on both counts.”
The Syriza government wants Greece’s creditors to make even more concessions than they have already made to prior governments. And it’s doing everything in the book to force these concessions through. So far without success.
Because there is one thing these good folks don’t get:
Officials in Europe and elsewhere make decisions with one eye on the financial markets. In 2011-2012, stocks plunged when EU bailout meetings didn’t go well or when a Greek politician insinuated that Greece might exit the Eurozone. It triggered fears of contagion. There was paranoia and panic. Investors were losing money!
Not this time. Euro government bonds have soared to where €2.2 trillion of them sport negative yields. The German DAX was up 22% in the first quarter and nearly 100% in three years. Greece has been surgically disconnected from the financial markets – except those in Greece!
That phrase – “cause a furor in the markets” – with which the source via the Telegraph threatened Eurozone politicians doesn’t apply anymore. It has been obviated by events. There may be a few ripples if Greece returns to the drachma, but there won’t be contagion. The only “furor” will be in the Greek markets.
That’s what these Syriza folks don’t get. Times have changed. That method of extortion worked wonderfully in 2011. But now, it no longer works. They miscalculated.
Greeks love the euro. A Grexit is unthinkable for them. They’ve had plenty of experience with the drachma. No one would trust the drachma. The government would devalue it even faster than Draghi can devalue the euro. For the Greeks, the drachma has always been a way for the government to steal from them. They don’t want to return to it. They want to keep the euro.
And the most powerful force behind hanging on to the euro? Government officials and politicians, including the current generation, expect to get their rich pensions paid in euros. They don’t want their pensions to be converted to drachmas either!
All decision makers in the Eurozone know this. They’re scratching their heads, marveling at these politicians in Greece who appear to be the only ones who don’t know that the threat of returning to the drachma – so skillfully leaked – backfired and hit the Greeks.
As for the creditors, they’ve known for a long time that they’ll never get all their money back. They just haven’t explained it to their taxpayers.
But here is the thing: the Greeks could solve the crisis on their own, if they wanted to. Or do they know something that others don’t? Read… If Greeks Did This, the Terrible Crisis Would Be Over
Enjoy reading WOLF STREET and want to support it? Using ad blockers – I totally get why – but want to support the site? You can donate “beer money.” I appreciate it immensely. Click on the beer mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.