Greece risks cash crunch if Syriza wins, finance minister warns

Kerin Hope in Athens

©Michael Debets/Getty

Syriza leader Alexis Tsipras takes part in a protest against Greek austerity measures in November 2014

Athens risks running out of cash to make debt repayments in March if the leftwing Syriza party comes to power, Greece’s finance minister has warned, raising the prospect of a break with international lenders and a chaotic exit from the country’s four-year bailout.

“I’m raising a flag because there is complacency about raising funds to pay our obligations and that complacency is not warranted,” Gikas Hardouvelis said in an interview with the Financial Times.

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Mr Hardouvelis was referring to claims by Syriza, which is poised to win a January 25 general election, that Greece could avoid a looming cash crunch by issuing short-term debt for purchase by local banks and drawing on a buffer of treasury reserves.

George Stathakis, the shadow development minister, told the FT last week his party’s economic team saw “no reason to worry” over repaying €4.3bn of debt due in the first quarter. He argued that most of the payment could be covered by reserves with the remainder coming from a top-up issue of short-term treasury bills.

But Mr Hardouvelis, a technocrat who took over last June as finance minister in the coalition government of Antonis Samaras, the centre-right prime minister, stressed that a new administration would face “severe financial constraints” on taking office.
“The timeline is very pressing and the money isn’t there,” Mr Hardouvelis said,
His remarks reflect a wider debate ahead of the election about the viability of Syriza’s economic plans. The party and its leader, Alexis Tsipras, have shot to the top of the polls on promises to renegotiate the country’s massive debt pile. But Mr Samaras has countered that its plans are unworkable and will plunge Greece back into chaos just as its battered economy is finally on the mend.

Greece was unable to draw on more than €7bn of bailout aid in December after failing to reach agreement with its lenders on various economic reforms tied to a rescue programme that expires at the end of February.

Its financial position at present looks dire as a result: reserves have shrunk to just €2bn, while Greece has already hit its ceiling of €15bn in outstanding treasury bills permitted by the European Central Bank, putting a further squeeze on fundraising.

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Greece debt crisis

Greece struggles on with drastic austerity as eurozone leaders continue to argue over how to help the country cope with its debt mountain

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“We’re treading a thin line,” Mr Hardouvelis said. “Foreign investors refused to participate in last month’s T-bill auctions . . . They didn’t show up because they think the risk is way too high.”
Local banks took up the slack at the December auctions. But they would be stretched to fill a €3bn funding gap if foreign investors decline to roll over their Greek T-bill holdings in the first quarter, worsening the existing shortfall.
Mr Hardouvelis urged Syriza to work with European partners and agree to a six-month extension of the bailout — an idea advocated by many eurozone countries — to allow more time to arrange a smooth exit from the programme. Among other things, Greece would be able to contract a special credit line from the European Stability Mechanism, the eurozone bailout fund.
“If we are not in a programme as of March 1, that would mean a ‘dirty’ exit (from the bailout) . . . We would be on our own without any European support,” he said. “But six months would buy time to arrange a prudent exit from the programme.”
Political uncertainty has begun to affect the budget with the primary surplus for 2014 — before repayments of debt — now projected at 1.5 per cent of national output against an earlier forecast of 1.8 per cent.
Revenues fell sharply in December when parliament failed to elect a new president in a three-round vote triggering a snap general election. The International Monetary Fund has already revised downwards its 2015 growth target from 2.9 per cent to 2.5 per cent.
“Uncertainty over the elections has changed some people’s behaviour and they’re waiting for the outcome,” Mr Hardouvelis said. “We don’t yet see a problem with the budget . . . the problem is with contracts being delayed, investments being put on hold, in general a stifling of economic activity in various ways. But if the uncertainty is resolved quickly, you could make up the growth. Investors would jump back in.”
Mr Hardouvelis is optimistic that a Greek exit from the euro can be avoided, stressing that three-quarters of Greeks want the country to remain in the eurozone.
“If I were to take a long-term perspective and say that politics follows the wishes of the population, I think it’s clear that deep down they understand that [the eurozone] provides a guide for policy making that will fix this country,” he said.
But the risk of an accident remains, he warned — despite Syriza’s softening attitude towards Berlin and Brussels as it comes closer to winning power.
“I don’t perceive Grexit as a real option,” he said. “Nevertheless, because of the short-term constraints described, an accident could happen when they enter negotiations with the Europeans. I just hope they reach a good equilibrium quickly.”