Greece Facing Monetary Deadlines

Written by Sandy Williams

Can Greece remain in the EU without a new bailout? The question has been hotly debated with many EU policymakers willing to kick financially struggling Greece out while others fear that it would set a precedent that might weaken the European Union.

At issue is a €1.54 billion ($1.73 billion) bailout that Greece owes the International Monetary Fund. The loan agreement expires on June 30. If Greece fails to repay IMF, the European Central Bank may conclude that a default is likely and cut off Greek banks. The ECP is only allowed to lend money to solvent banks that can provide eligible collateral.

The Bank of Greece has been funding Greek banks with 83 billion in loans to keep up with weekly withdrawals. The ECB decides each week if the Bank of Greece will be allowed to increase the ceiling on the emergency liquidity assistance it has been providing. According to Armada Executive Intelligence, Greek banks in June have lost 25 percent of their value and more than 40 billion euros have been withdrawn as investors grow increasingly nervous over the crisis.

Greece also must repay €2 billion in treasury bills by July 10. On July 17 the government must repay another €1 billion in treasury bills. If Greece fails to make the payments it will be in default. If it does not repay the IMF it will default, but it will have more money to make its treasury bill payments.

An alternative is for Greece to leave the EU, voluntarily or by dismissal, and begin printing its own currency, a possibility that probably will not help if the government does not take more austerity measures.

Greece has been reluctant to cut back on its spending and the talks with Troika (the three institutions ECB, IMF and the European Commission) have been unproductive.

“We are still on this endless cycle of pressure from creditors to get the Greeks to get more aggressive about cutting spending to put their economy on the right track,” writes Armada Executive Intelligence Brief. “A leftist elected Government has a voting base that put it in office on the auspices of keeping public assistance flowing and job benefits that many other countries in their situation can’t afford. The standoff continues. As the standoff continues, the risk of a default at the end of the month looms.”

Germany and its Chancellor Angela Merkel have stood resolute that firm action must be taken regarding Greece.

“The true hard liner in all this has been the German Finance Minister – Wolfgang Schauble,” says Armada. “He is adamant that not one concession be made to the Greeks and for him this dispute has become personal. He despises the Greek Finance Minister – Yanis Varoufakis – and will no longer even talk to him. Schauble dismisses him as a leftist fanatic with no governing experience because he is a leftist fanatic with no governing experience and Schauble is tired of accommodating his antics. He wants the focus of attention to shift away from some last ditch effort to bail Greece out and towards some kind of orderly Grexit. He makes it very clear that he thinks the EU would have been better off with Greece out of the organization years ago and it will certainly be better off without it in the future.

“Although Merkel shares his animosity towards the radicals in Syriza and is not inclined to cut many deals, she is definitely against a Grexit – she doesn’t want her legacy to be that of the leader who started the dismembering of the euro. She is open to something if the Greeks make any effort at all.”

On Monday, June 21, an emergency summit will be held in Brussels to try to resolve the bailout terms with the EU and IMF.

“Let me make it very clear as to the expectations,” Mrs. Merkel said on Friday. “Such a summit can only become a summit of decisions if there is something to base a decision on. It is up to the three institutions [the ECB, IMF and European Commission] to assess this, and up to now we don’t have that assessment.”

“Apparently, there are some in the Greek government who have misunderstood and believe that there is someone in Europe who can pull a rabbit out of the hat in the end,” said European Commission President Jean-Claude Juncker said in an interview with the German newsweekly Der Spiegel. “But that is not the case.”

NOTE: Dr. Christopher Keuhl, managing director of Armada Corporate Intelligence and one of its co-founders, will be joining us at the Steel Market Update Steel Summit Conference, September 1 & 2 at the Georgia International Convention Center (GICC). Dr. Kuehl will provide his keen insight on global economics and the current and potential risks we are facing.

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