MADRID
While Europe’s political leadership are focused on the second round of the French presidential election campaign, British Conservative party leader Theresa May’s attempt to consolidate support for her hard-line Brexit negotiations, and on the right-wing lurches by Hungarian Prime Minister Viktor Orban, the financial mandarins in the European Union will be firmly focused on Greece.
Simply put, the next 90 days will likely determine the fate of Greece inside the euro — the common currency used by 19 members of the EU.
May has given Brussels until March 2019 to reach terms on Britain’s withdrawal from the bloc. By midsummer at the latest, the EU administration in Brussels will need to reach some sort of agreement with Athens on moving forward.
The smouldering debt crisis will significantly impact the euro’s value against the US dollar, the pound and other safe-haven currencies. That’s the best scenario, should Europe’s leaders, in finance officials and those in the European Central Bank, the International Monetary Fund and those in the global bond markets agree to a debt-relief programme for Athens.
A succession of Greek governments received bailouts in 2010, 2012 and 2015 totalling €240 billion (Dh946 billion), with the conditions for each subsequent payout being more stringent than the previous one. The €240 billion will cost €294.6 billion after interest.
At present, Greece’s debt to GDP ratio remains at an exceedingly high 176.9 per cent — the highest in Europe, followed by Portugal at 133.4 per cent and Italy at 32.7 per cent, according to Eurostat data for the third quarter of 2016. The average for the 19 members across the Eurozone was 90.1 per cent, according to the Eurostat data.
Incidentally, the total debt owed by the governments who use the euro amounted to a staggering €9.614 trillion, and for the entire 28 EU members, the figure is €12.354 trillion at the end of the third quarter of 2016.
But back to Greece: Between now and the end of July, the Athens governments must find €16.2 billion to repay its creditors. Putting that figure in perspective, in the two years between February 2015 and February 2017, Greece has paid $34 billion back to its creditors. Over the next three months, it will need to find pretty much half of that again.
It’s a punishing repayment schedule, one that will reach a make-or-break climax between July 17 and 20, where €6.27 billion must be repaid to the IMF, the European Central Bank, the European Investment Bank and private investors. Should Athens default, defer or stall on any of these payments, it will hit the common currency hard and provide more ammunition to May, Euro-sceptics across the continent as well as France’s Marine Le Pen that the institutions that bind the EU together in Brussels are broken.
Next month is relatively easy for Athens, facing short-term treasury bill repayments of €1.4 billion each on May 5 and May 12.
By mid-June, Athens will have faced the task of finding another €5.2 billion to cover to its obligations. While Europe’s political leadership will be looking to London on the morning of June 9 to see the fate of the Conservatives and the way that Brexit might be unfolding, Greece’s Finance Minister Euclid Tsakalotos will be writing two cheques worth €3.6 billion, for €2 billion and €1.6 billion respectively, for short-term treasury bonds. And a week later, on June 16, another short-term treasury bond cheque has to be signed to cover more short-term treasury bonds worth another €1.6 billion.
Should Athens default on a treasury bond, it will be in a position it last endured in 2012. Then bond holders took haircuts of up 50 cents on the euro in bailout negotiations. Should a default happen this time around, it means a deep crisis for the EU and the common currency at a time when German Chancellor Angela Merkel is about to begin campaigning for re-election. Both right- and left-wing parties in Germany will make political capital should Merkel again be inclined to lead the way in bailing out weaker Eurozone partners.
And should the Athens government get through June, it gets bad — really bad — in July.
On July 7, a repayment of €2 billion is due on more short-term treasury bills. But 10 days later, it’s make-or-break time for Athens.
On July 17, the Tsirpas government is due to pay a little over €2 billion — €2,089,100,000 to be exact — to private investors who hold bonds issued by Athens in 2014 and later.
No sooner is the ink dry on those cheques but Athens must cover another €290,226,972 on July 18 to the IMF for a loan given under the second bailout Greece received in 2012.
Just two days later, on July 20, the European Central Bank is due two separate payments; one of €2.412 billion in bonds exempted to it under the terms of the 2012 bailout; and another €1.456 billion in bonds due to national central banks, again under the 2012 bailout terms.
Also due on July 20 is the matter of a small cheque for just €10 million to be written to the European Investment Bank to cover bonds it holds — again exempted under the 2012 bailout terms.
If Athens makes good on all of those payments, it still owes another €1 billion on August 4 to short-term treasury bond holders — and another €1.4 billion to cover short-term treasury bonds on September 1.
Even if the Tsirpas government manages to exact long-term debt relief from the IMF, the fundamentals of his nation’s economy remain weak.
Indeed, the IMF is warning that even if more austerity measures and economic reforms are executed by Greece — and with short-term debt agreed — Athens’ debt load is doomed to become explosive, with the IMF saying it becomes untenable by 2030.
Greek voters have had enough of austerity measures and extra taxation. Passage of some of the harshest cuts yet earlier this year has seen the Tsirpas government’s popularity nosedive in polls, and asking for any more is “not only extreme but absurd,” the PM said.
Right now, 36.8 per cent of the Greek government’s annual revenue comes from taxation revenues for 2015. In 2009, before the first of the three bailouts, it was 30.9 per cent, according to data from the Organisation for Economic Cooperation and Development. Over that same period, Germany’s percentage of revenues from tax has remained relatively stable, from 36.1 to 36.9 per cent.
“Greece cannot grow out of its debt problem,” the Washington-based body wrote in a confidential report leaked to the media in February. “Greece requires substantial debt relief from its European partners to restore debt sustainability.”
Simply put, the next three months is crunch time. Grexit anyone?
