Weekend Economists Volvemos a Puerto Rico May 22-25, 2015

[MattSh]

31. Greece Cornered as IMF and ECB Refuse to Relent | naked capitalism

Even though Greece has looked to be on the verge running out of cash since late March, the government has managed to extend its own sell-by date by deferring payments to government suppliers, finding and emptying every pocket of funds it could fund, and most recently, using a special drawing rights account to pay the IMF. This is tantamount to the sort of behavior that Yanis Varoufakis decried early in the negotiations, of the creditors’ extend and pretend behavior being tantamount to using one’s credit card to pay the mortgage.

But it increasingly looks like a default is nigh. Varoufakis, who in the past has been reassuring or at least non-commital about Greece’s financial condition, said the government had only about two weeks of funding left as of the IMF payment finesse last week. The IMF was less precise as to timing, but a leaked bureaucratically measured memo dated May 14 stated the obvious: that there is no way Greece can meet its obligations coming due between June and August unless they come to a deal with the creditors.

Even as Greece is becoming visibly more desperate, so far, its “partners” are not acting as if they are alarmed by the prospect of default, as in scrambling to find ways to finesse Syriza’s red line or extend the negotiation timetable. Ekathimerini stated on Sunday that Alex Tsipras sent a letter to IMF managing director Christine Lagarde on May 8 stating that Greece would not be able to make its May 12 IMF payment, and also sent the letter to the EU’s Jean-Claude Juncker and the Mario Draghi of the ECb. Tsipras also reportedly called US Treasury Secretary Jack Lew with the same information. Yet the threat of an imminent default did not lead to a breakthrough (as in a concession) from the creditors in the technical-leval talks over the weekend, to the Eurogroup relenting on its existing plan to make no decision (as in not authorize) regardling a release of funds at its May 11 meeting. or to the ECB letting up on its government funding choke chain. As the Telegraph pointed out:

The Greek premier also appealed to the ECB to allow his cash-starved government to issue short-term government debt and requested the return of €1.9bn in profits held by the ECB from holding Greek bonds.

Following Syriza’s election, the ECB has banned Greek banks from increasing their holdings of T-bills, placing a further squeeze on the government which is scrambling to find the cash to make its public sector obligations every two weeks.

Mr Draghi and his governing council failed to lift the prohibition at a meeting last week, but did provide an additional €1.1bn in emergency liqudity to the country’s banks.

Complete story at - http://www.nakedcapitalism.com/2015/05/greece-cornered-as-imf-and-ecb-refuse-to-relent.html