The Greek government would run out of cash by early July if its international partners decided to withhold their next aid payment because politicians have yet to form an administration, Bank of America Merrill Lynch said.
Greece currently has about 2.5 billion euros ($3.2 billion) in cash and could survive for about two months if inflows and expenses are similar to those in 2011, according to the report by a team led by Chief European Economist Laurence Boone. If revenue collection falters, the government could run out of cash as early as June, it added.
Greek lawmakers are in their fifth day of talks about forming a government following the inconclusive May 6 election that marked the rise of parties opposed to the terms of the nation’s bailout. The impasse has raised the possibility another ballot will have to be held as early as next month. For now, international money is still flowing to Greece. The European Financial Stability Facility disbursed 4.2 billion euros to the country yesterday.
Even the best-case outcome “highlights the extreme urgency for the Greek political system to resolve the governance issues as soon as possible,” the Bank of America report said. “Our central scenario is that Greece will have a viable government after the June elections with a pro-European approach. However, the probability of the country being driven to a full-blown default and an exit from the euro is not trivial.”
The EFSF has held back 1 billion euros of the planned payment to Greece, suggesting that European authorities want to compel Greek politicians to come up with a solution.
“The pressure is likely to be sustained,” ING Rates Strategist Padhraic Garvey said in a separate note. As no further bond redemptions are due in July and August, the thinking may be “that Greece’s funding requirements over that period are purely internal and so Greece can stew in that,” he said.