As expected, Greece was able to make the 750M EUR payment to the International Monetary Fund last Tuesday but in order to get its hands on the cash, the country had to force all of its public service departments to fork over the remaining cash they had left.
As we were warning in a previous article, even though the Greeks were able to pay the 200M EUR interest payment and 750M EUR principal payment, its future after these two repayments was absolutely unsure. Over the next three months, Greece will have to cough up an additional 7B EUR and as you can imagine, it just doesn’t have the money. It doesn’t even have a fraction of that money as we’re estimating Greece’s financial possibility to repay more debt to be less than a billion Euro. That’s why Greece wants to schedule another meeting with the Eurogroup before the end of this month (and this was confirmed by a government official). This indicates the country really is running on fumes here.
Time to ring the alarm bell once again as the ‘negotiations’ between Greece and the other European counterparties don’t seem to be resulting in a solution. The problem about these negotiations is that they will aggravate the situation. The longer it takes, the more urgent the situation gets and it wouldn’t surprise us to see yet another quick but temporary fix the evening before a large payment is due. This is just kicking the can further down the road and the same problems will re-surface 3 or 6 months later.
The Greek minister of Finance was hinting at the possibility the 27B EUR of bonds that are currently being held by the ECB (as part of its Securities Markets Programme) should see the maturity date being extended. Again, this is just another temporary fix as the bonds will be due someday. Extending the maturity date by just a few years won’t help at all.
So why would Greece deserve more time to repay the debt it owes to the international community? Because things are brightening up and its economy is looking stronger? Think again, as Greece has re-entered a recession once again.
The country’s GDP has been shrinking again for two consecutive quarters and even though the drop is relatively small (0.4% and 0.2%), it surely doesn’t look like the economy is picking up again. Greece’s hopes will be focused on this year’s summer seasons which should draw a lot of tourists, but it’s a bit pathetic if a country needs to count on tourism to temporarily get it out of its cash crunch.
The fact Greece is asking for another emergency meeting says heaps, and the Euro-system could very well collapse sometime in the next few weeks on the back of this Greek drama.
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