In June, Greece must repay €1.5 billion to the IMF and roll over €5.2 billion in short-term bonds. The Greek interior minister, Nikos Voutis, told a Greek TV interview host that as things stand, Greece cannot make the IMF repayment: ”The four instalments for the IMF in June are €1.6bn, this money will not be given and is not there to be given”. Even if the EU and IMF were to release the final €7.2 billion of bailout funding, the Greeks would still come up short on the funding needed, however, if the money was released, fears of a Grexit would ease and other channels of finance would open up. The big question is whether Greece will do enough to get its creditors to open the coffers.
It is clear that the Greek finance minister thinks that progress has been made, speaking to the BBC’s Andrew Marr show, Yanis Varoufakis said: “Greece has made enormous strides at reaching a deal. It is now up to institutions to do their bit. We have met them three-quarters of the way, they need to meet us one-quarter of the way.” It is less than certain that the EU and IMF agree with this assessment of the facts.
Firstly, the EU and IMF twice rallied to the side of the Greek people with bailout funding which was conditional on Greece’s making structural and economic reforms which their partners judged would put the nation on a path to a sustainable future. Indeed, it seemed at the end of 2014 that Greece had finally turned the corner and was running a current account surplus. In a snap general election in January, Syriza swept to power on pledges to have half of the nation’s debt written off; end the involvement of the Troika in Greek affairs; end austerity; and reverse some public sector redundancies, amongst other promises. These promises could only ever be achieved if Greece’s creditors agreed to foot the bill which was always a dubious proposition.
Varoufakis acknowledges that a Grexit would be "… a disaster for everyone involved. It would be a disaster primarily for the Greek social economy, but it would also be the beginning of the end of the common currency project in Europe. Once you infuse into people's minds, into investors' minds, the idea that the euro is not indivisible, it will be only a matter of time before the whole thing begins to unravel." In this analysis, he is only partially correct.
Whilst nobody wants to see the Greeks leave the Euro (and possibly the EU itself), the damage to the single currency of allowing Greece to flout its responsibilities and engage in monetary recklessness is probably a greater risk. Showing Greece the door would show markets that the Eurozone is serious about monetary discipline. Former Federal Reserve Chairman Alan Greenspan told a Dutch newspaper, Het Financieele Dagblad, that a Grexit was a matter of time and would not lead to the break-up of the Eurozone. In the opinion of Warren Buffett a Greek exit could make the Euro stronger.
German Finance Minister, Wolfgang Scraeuble noted that Greece had committed to policy changes as a condition of extending the bailout for three months from the end of February: “That is the condition for completing the current program. The problems are rooted in Greece. And now Greece does have to fulfil its commitments,” Schaeuble said in a Deutschlandfunk radio interview on Sunday.
There would seem to be a real danger that the Greeks are overestimating their importance to the survival of the Euro and failing to understand the Eurozone cannot and will not write them a blank cheque because of the risks that such a move would cause to the credibility of the single currency. The sands of time are fast running out…