On Wednesday, reports out of Germany indicated that Berlin was drawing up plans to keep the Greek banking sector from crumbling in the event Athens missed one or more of its upcoming payments to the IMF (i.e. in case Greece defaults). Yesterday evening, we went on to highlight a UBS note which cautioned investors not to use bond yields as a proxy for contagion risk because monetary policy has served to strip sovereign spreads of any meaning when it comes to price discovery and conveying risk to investors. It’s bank runs triggered by depositors’ conception of redenomination risk that are the real fear and a Greek exit could well cause periphery depositors to “take it to the mattresses” so to speak.
Today, we learn that earlier this month (so around the time Athens was busy denying reports of an imminent default), Greek officials floated the idea of delaying payments to the IMF due shortly after the government runs completely out of cash at the end of April. Here’s more via FT:
Greek officials have made an informal approach to the International Monetary Fund to delay repayments of loans to the international lender, highlighting the parlous state of Greek finances, but were told that no rescheduling was possible.
According to officials briefed on the talks by both sides, Athens was persuaded not to make a specific request for a delay to the Fund, which is owed almost €1bn in two separate payments due in May.
Although Athens was rebuffed, the discussions, which occurred in private earlier this month, are a sign that the Greek government is finding it increasingly difficult to scrape together enough money to continue to pay wages and pensions while meeting its debt payments to external lenders.
Yields on Greek bonds soared on Thursday following the news, with yields on three-year paper rising 134 basis points to 25.10 per cent, the highest since the country’s restructuring. Its 10-year yields climbed 45 basis points to 12.18 per cent…
MF officials have repeatedly said that a rescheduling of repayments can only come as part of a completely renegotiated new bailout programme. Were it to miss a payment, Greece would become the first developed economy to go into arrears at the Fund, something only counties like Zaire and Zimbabwe have done in the past…
One source briefed on the approach said the proposal was to “reshuffle the repayment schedule for the IMF loan over the coming months,” allowing the new Greek government led by Alexis Tsipras to have the money to pay bills for pensions and public sector salaries while negotiating with European creditors over payment of the next tranche of bailout loans.
So it’s either pay salaries and pensions or pay the IMF which is tragically ironic because Athens has already gone the route of plundering pensions to make payments to its creditors, the only difference is that now, instead of “borrowing” money from the public coffers and hoping to pay it back in the interim before anyone actually gets shorted, you’re talking about simply not paying people at all (or paying people with IOUs which would be the hilarious rough equivalent of conducting repos with individual citizens) which needless to say could turn into an untenable social and political issue virtually overnight, not to mention the fact that if the government defaults you would almost certainly see the imposition of capital controls in order to stem the inevitable deposit flight. Athens owes nearly €2 billion in public sector wages and pensions at the end of the month.
As a reminder, here is the creditor repayment schedule:
Meanwhile, Athens is looking at “creative” ways to boost liquidity such as the following scheme to “exploit” church property (via Bloomberg):
Greece to set up special committee to investigate possibilities of exploiting property of the Greek Orthodox Church, PM Alexis Tsipras says in letter to Archbishop Hieronymos today.
Revenue will be used to boost country’s liquidity: Tsipras
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And on the one-year anniversary of the Greek 5-year bond (which you'll recall attracted voracious demand):