Lately there have been widespread fears that the Greek government might not be in a position to honor its debt repayments during March, which amount at €2.5bn (€1416mn in repayments to the IMF, €800mn in interest payments and €280mn in other obligations). Although I agree that things are getting quite tight, I do not think that a ‘failure to pay’ is imminent. Such an issue will emerge mainly during the summer (in July and August) when Greece will have to pay a total of €8.81bn (with the bulk belonging to €6.68bn of ECB SMP bonds which mature then).
Lets start from the easy facts. Greece will not be receiving any funds from the official creditors until a successful completion of the current review for the bailout package. This also includes €1.9bn in SMP profits which have already been remitted by the ECB to Eurozone countries. Moreover, the limit for short-term T-Bills issuance (at €15bn) has already been reached and the ECB/SSM does not seem to be keen in (temporarily) increasing it.
According to the BoG January data, the central government budget balance on a cash basis (which is the one we are mainly interested in) was negative both for the primary and overall figures (€150mn primary deficit and €220mn overall). At least during January, revenue registered a substantial shortfall of €1.33mn compared to the same month for 2014 which was the main factor that drove the balance to deficit compared to a positive net balance of €600mn during January 2014. Obviously, unless the Greek government succeeds in improving tax collection significantly, the revenue shortfall will quickly create very serious problems for its financial position.
Nevertheless, apart from monthly revenue and expenditure flows, the Greek government also holds substantial liquid assets. Unfortunately, most statistical data are published with large lags (for instance we still don’t have the January figures for the BoG balance sheet) and usually refer to the general government. Given that the central government is taking measures in order for general government entities to ‘invest’ their surplus funds in repos with the central government, we can draw an overall picture based on the data available.
BoG annual accounts for 2014 show that the Greek general government held around €3.5bn in its accounts at the central bank. Additionally, the BoG bank deposits data (with January figures released a few days ago) do provide a detailed breakdown of deposits by government branch:
It is evident that, although the government financial position has deteriorated during the last few months (with deposits falling from €14bn to €12.26bn), the central government still holds substantial liquid deposits in the banking system which stood at €6.66bn at the end of January. Moreover, social security funds held €3bn in sight deposits while local governments another €1.8bn. Obviously a large part of the above funds are used in day-to-day operations (pension payments for example exceed €2bn per month) yet clearly substantial assets exist which could be used in an ‘emergency’ situation. The Greek government could also probably make use of the Greek pension funds ‘common capital’ which is invested in Greek government bonds and T-Bills and is currently valued at around €5-6bn.
Based on the government balance during January, deposit data, BoG 2014 balance sheet and debt payments in January (€1.6bn), the Greek general government should still have over €13bn in deposits at the BoG and Greek banks (the actual figure will depend on the budget execution during February). Moreover, BoG will be paying a dividend of €640mn during March which will provide a substantial windfall revenue for the government.
As a result, the actual data do not point to the Greek government having an immediate liquidity problem, at least during March. The main issue is one of a political nature since the Greek state is slowly getting inτο a position where it has to decide whether to prioritize debt repayments towards the official sector or immediate relief for its citizens while also achieving timely clearance of arrears and execution of scheduled payments. Obviously the current situation quickly reduces the government’s ‘degrees of freedom’ and strengthens the creditor position who can just ‘sit and wait’ for Syriza to slowly give in to all their demands. Given the schedule of debt repayments this stand-off will end in one form or another in the summer (June also includes a large sum of €2.62bn in payments).
One last possible problem is the ELA caps set by the ECB. In order for the Greek government to use bank deposits to pay maturing debt, the funds will have to be transferred to its account at the BoG and eventually increase Target2 liabilities. As a result, the transfer will require an equal increase in ELA financing, the terms of which (total amount and collateral framework) are set (up to a point) by the ECB governing council.