ECB to Debate Greek Banks Collateral as IMF Payment Looms

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The European Central Bank prepares to debate on May 6 whether to make access to emergency cash for Greece’s banks more difficult if aid talks remain deadlocked, just as the cash-strapped country will be faced with yet another debt payment.

While Prime Minister Alexis Tsipras’s government struggles to pay pensions and salaries at the end of the month, Greece may get a brief respite in interest of about 201 million euros ($217 million) on its International Monetary Fund loans due on May 1. As the deadline coincides with a holiday, followed by a weekend, the payment can be delayed until May 6, a person familiar with the matter said.

The Fund will only send the payment notification on May 4, and Greece will have two days to make the payment, the person said. The deadline for a principal repayment of about 766 million euros, which is due May 12, won’t change, the person said, asking not to be named, as he was not authorized to speak publicly on the matter. IMF spokeswoman Angela Gaviria declined to comment.

The May 6 interest payment will be due on the same day that the ECB’s Governing Council will meet to discuss whether to extend funds from its Emergency Liquidity Assistance lifeline to Greek lenders. If the review of the country’s bailout remains stalled until then, euro area central bank governors may raise the haircut they apply on collateral they accept in exchange for the funds, which may eventually curb ELA access due to insufficient collateral, a separate person familiar with the matter said. Greek banks are being kept afloat thanks to 75.5 billion euros of ELA provision, subject to weekly review by the ECB.

Bailout Talks

European negotiators on the Greek crisis should “swiftly” reach agreement, German Chancellor Angela Merkel said today, after a Eurogroup meeting in Riga ended in acrimony. Euro-area finance ministers will take stock of Greece’s loan program at a meeting in Brussels on May 11, Dutch Finance Minister and Eurogroup President Jeroen Dijsselbloem said.

Greek bonds fell as yields on three-year notes rose 144 basis points to 26.3 percent as of 5 p.m. London time. The Athens Stock Exchange General Index rose 3.4 percent to 761.5 at the closing of the trading day.

Greece has lost access to capital markets and relies on emergency loans from the IMF and the euro area to stay afloat. As a review of its compliance with bailout terms remains stalled for the eighth consecutive month, the country is running out of time and money. Its liquidity position is so tight, that a missed payment on its international obligations may be a matter of weeks, according to economists surveyed by Bloomberg.

Cash Shortage

Interest on IMF loans is calculated and paid quarterly, using the three-month periods corresponding to the IMF fiscal year of May 1 to April 30. A Greek official with direct knowledge of the matter confirmed that the payment is due May 6, saying that interest charges on IMF loans are being paid 4 working days after the end of the month charged. May starts with non-working days.

Internal obligations, including payments to civil servants and retirees, are also becoming increasingly difficult. Greek deputy Finance Minister Dimitris Mardas said Wednesday that the country’s coffers are about 400 million euros short of the amount needed for meeting salaries and pension obligations next week. The finance ministry has so far secured 160 million euros from local authorities, hospitals, universities and municipalities, after the government ordered them to hand over cash reserves to Bank of Greece, Mardas said today.

The move could buy the government up to six weeks of liquidity if local authorities swiftly comply, a person familiar with the matter said earlier this week, while negotiations with creditors continue.

Snap Elections

If talks over the disbursement of bailout funds reach a dead end, the government would consider the options of snap elections or a referendum, according to Greece’s deputy Prime Minister, Yannis Dragasakis. These alternatives are “at the back of our mind, as options to seek a solution, in case of deadlock” Dragasakis was cited as saying in an interview with To Vima newspaper, on April 19.

A referendum on measures requested by creditors and euro membership looks to be the most likely way out of current impasse with a probability of 55%, Dimitris Drakopoulos and Lefteris Farmakis, analysts at Nomura International PLC, said.

If Greece were to act on one of these options, time is running short. The constitution dictates a minimum of three weeks after an election is called for the ballot to be held. This would mean that Tsipras would probably have to decide on this option by next week, or risk the country running out cash in the middle of the campaign trail.

“There are still wide differences to bridge and to build on substance,” Dijsselbloem said after a meeting of euro area’s finance ministers in Riga, Latvia, today.

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