It’s that “here we go again” feeling. The Greek government has until April 9th to make a €465-million payment to the International Monetary Fund. If it fails to do so they will be denied another €7.2 billion in emergency funds that are available to them under their existing financial program. Reuters is reporting without the extra money Greece will run out of cash by April 20th, and be unable to meet its civil servant payroll and pension payment obligations. Now, Greece is tapping her European Union partners – mainly Germany – to come up with the money to pay the debt that will help them stay solvent. Essentially, they’re using debt to pay debt – and if Greece was my friend, I would say they’re bankrupt.
Also read: Will Greece Leave the Euro?>
Greece’s Current Situation
In order to run the country, Greece has borrowed money from its European Union partners, the International Monetary fund and the European Central Bank. The new left leaning Prime Minister Alexis Tsipras is anti-austerity and has re-established many of the programs cut in the last few years. Now, that money that was being saved from the strict austerity measures implemented by the last government is eating into Greece’s ability to meet its debt payment obligations. Some experts say Greece may have to raid insurance funds to make their payments happen.
Have Mercy, Germany
Tsipras met this week with German Chancellor Angela Merkel in a bid to unlock the funds so Greece can meet their April debt obligations. Merkel, along with her EU partners, the ECB and the IMF, have sent Tsipras back with homework, asking him to present by Monday a list of reforms that have been established in the country that will show the country is serious about paying its debt. Only then will Greece be able to unlock the money it needs to stay afloat.
Greek Citizens Panicking
Ahead of the crucial April 9th deadline, Greek bank deposits have plummeted. Greek citizens are worried what would happen to their deposits should Greece declare itself bankrupt or leave the EU. The latest is the ECB has reportedly agreed to raise the liquidity on offer to Greek Banks to €71bn, which is good news for the banks. But it is in direct response to Greeks withdrawing their deposits from the bank, essentially to stuff them under their mattresses. This leaves the banks with less liquidity, and contributes to a credit crunch.
Greek Bonds Seen as High Risk
Greek bonds are currently yielding more than 10 per cent.They have actually trended down slightly following fresh funds made available from the ECB – but now, global investors are concerned with the rising possibility of Greece leaving the Eurozone. What would that look like and what impact would it have on world equity and bond markets?
Recently, renowned investor George Soros gave Greece a 50/50 chance of staying in the Euro and likened it to to what the world experience after the Lehman brother’s collapse. But he added “I am of the view that Greece leaving the euro-zone would not be a big bother for the equity markets and bond markets.” He went on to say though its probably best for the world if Greece remains in the E.U. “considering the geo-political crisis in relation with Russia.” If Greece left the Euro markets would fluctuate, and that impact would extend to Canada and the TSX. So getting back to my original point that Greece is bankrupt, the fact that on a monthly basis the country is looking for money from its partners to pay its bills. If I had a friend with the same issues, always asking for money to run their life, I think telling them they are bankrupt would not be hard to do.