Opinion
At This Point, Only a Miracle Can Save Greece from Disaster
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In either scenario, the downside of bankruptcy is so bad that the possibility of a deal with creditors to avoid it is almost too good to be true.
By Nicholas Economides
The new leftist Greek government is running out of cash fast. Elected on the promise to disburse large amounts to those hurt by austerity, it cannot even pay the regular obligations of the State. Within two to four weeks, Greece will not be able to pay salaries, pensions and loan obligations to the International Monetary Fund and other lenders. The clock is ticking and time is running out. Greece must grasp the only lifeline left and negotiate with creditors now to save itself.
By the middle of May, Greece will need to refinance $3 billion of its Treasury bills. Typically, Greek banks buy most T-bills, but the European Central Bank has placed restrictions on these purchases. As a result, Greece is faced with the burden of covering $756 million worth of new T-bills, as well as repay $836 million to the International Monetary Fund (IMF) on May 11. That’s a total of about $1.6 billion, which doesn’t include paying salaries, pensions and other government expenses.
Greece also faces a significant shortfall of tax revenue since many Greeks expected the government to reduce, forgive or postpone tax obligations. With very little reserves to save the country from bankruptcy, the government has forcibly appropriated the cash reserves of pension funds, municipalities and agricultural subsidies in transit. By June 18, Greece would need to spend $4.7 billion, which includes $2.16 billion in T-bills, as well as repaying $2.55 billion to the IMF.
Read full article as published in Fortune
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Nicholas Economides is a Professor of Economics.
By the middle of May, Greece will need to refinance $3 billion of its Treasury bills. Typically, Greek banks buy most T-bills, but the European Central Bank has placed restrictions on these purchases. As a result, Greece is faced with the burden of covering $756 million worth of new T-bills, as well as repay $836 million to the International Monetary Fund (IMF) on May 11. That’s a total of about $1.6 billion, which doesn’t include paying salaries, pensions and other government expenses.
Greece also faces a significant shortfall of tax revenue since many Greeks expected the government to reduce, forgive or postpone tax obligations. With very little reserves to save the country from bankruptcy, the government has forcibly appropriated the cash reserves of pension funds, municipalities and agricultural subsidies in transit. By June 18, Greece would need to spend $4.7 billion, which includes $2.16 billion in T-bills, as well as repaying $2.55 billion to the IMF.
Read full article as published in Fortune
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Nicholas Economides is a Professor of Economics.