A European Union flag flutters as the ancient Parthenon temple is seen in the background in Athens May 6, 2015. The European Central Bank's Governing Council on Wednesday may nudge up the amount of Emergency Liquidity Assistance teetering Greek banks can borrow, as Athens struggles to avert a potentially catastrophic funding crunch.ALKIS KONSTANTINIDIS/Reuters
The phony war is over. Greece has to get a new bailout signed and sealed in a hurry because its debt repayment schedule is going from the merely painful to the outright traumatic.
On Monday evening, only hours ahead of deadline, Greece confirmed it made a €750-million ($1.01-billion) loan payment to the International Monetary Fund in spite of pressure from some members of the ruling Syriza party to withhold the transfer unless the European Union acknowledged that some progress had been made on the bailout talks.
While the payment to the IMF buys Greece some credibility, it buys it little time. Greece's dash for cash is becoming desperate – its debt repayment bill will balloon through June and July even as the country's cash reserves go in the opposite direction.
In June, Greece must pay the IMF almost €1.6-billion. In July, the IMF is owed another €465-million. Greece must also stump up some €200-million in interest payments on government bonds. The monster is the €3.5-billion bond held by the European Central Bank, which comes due July 20. As well as keeping the ECB and the IMF happy, the Greek government has to make billions of euros in payments for public sector salaries and pensions.
Greece was able to scrape together enough funds to pay the IMF on Monday thanks to frantic raids on the cash balances of various municipalities and pension funds. A repeat raid is unlikely. Absent another bailout, Greece will be unable to stay afloat through the summer.
The European Union portion of Greece's current bailout lapses at the end of June. Greece is still owed €7.2-billion from that program. If Greece can come to terms with the EU, the ECB and the IMF in the next few weeks, the amount will be released and Greece might just avoid a default that could send it crashing out of the euro zone. If that were to happen, the contagion would easily trigger a fresh crisis in Italy, Spain and Portugal, the other weaklings on the euro zone's Mediterranean flank.
If Greece thinks it can miss any future IMF payments, it's dead wrong. The IMF might tolerate a late payment, but a default would be unthinkable. According to the Financial Times, no advanced economy has defaulted on the IMF in the organization's 70-year history. If Greece were to go into arrears, the country would immediately lose access to IMF funding.
In other words, Greece has to find a way to keep the IMF happy even if it means borrowing a lot more money to repay a lot of borrowed money. But the EU is demanding deep and enduring economic reform in exchange for a new bailout. Greece has made little progress in meeting those demands as Syriza, the radical left party elected in January, tries to fulfill the anti-austerity mandate handed to it by Greek voters. If anything, Greece went out of its way to lose the confidence of its bailout masters. Only a few days ago, it passed a law allowing it to rehire about 4,000 public-sector workers, including cleaning ladies, who got axed during the financial crisis. The EU and the IMF wanted to know: With what money?
The IMF, the EU and the ECB will no doubt ratchet up the pressure on Greece to accept a deal in the next couple of weeks, gambling that the Syriza negotiators (who do not include Finance Minister Yanis Varoufakis, who has been sidelined) will, in the end, do anything to stay in the euro zone. The risk is overplaying their hand. The ECB might, for instance, tighten up the emergency liquidity assistance handed to the Greek commercial banks. But if the ECB tightens too much, the banks could fall victim to a bank run that could prove fatal to the Greek economy and unleash a tidal wave of defaults.
Indeed, both sides are wary of an accident that could trigger mayhem. In an interview published Saturday in Germany's Frankfurter Allgemeine Sonntagszeitung, German Finance Minister Wolfgang Schaeuble said, "Experience elsewhere in the world has shown that a country can suddenly become unable to pay its bills."
Indeed, Hemingway's line about bankruptcy will haunt Greece and its international creditors as crunch time looms. "How did you go bankrupt," he asked. "Two ways. Gradually, then suddenly."
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What's the word
Syriza
Syriza is an acronym for 'Synaspismos tis Rizospastikis Aristeras,' which in Greek means 'Coalition of the Radical Left.' Syriza is the governing left-wing, anti-austerity political party in Greece, led by Alexis Tsipras. The party was founded as a political alliance of various leftist groups in 2004. The party's logo is a five-pointed star (a symbol of unity) with three flags: a red one representing the left, a green one for the ecological movement and a purple one that represents other social movements that Syriza says it embraces, such as feminism, migrant rights and gay rights.
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Telling numbers
€324-billion - Greece's national debt
€750-million - Loan payment Greece made to the International Monetary Fund on Monday, plus a further €1.6-billion in June
177% - Greece's debt-to-GDP ratio
25% - Drop in Greece's GDP since 2010
26% - Greece's unemployment rate