Greece

Leaving Greece in Limbo Helps No One

Looming debt payments should motivate Greece's creditors to find a solution.

For Greece, July is the cruelest month.

Photographer: LOUISA GOULIAMAKI/AFP/Getty Images

Greece is back in the news, for all the wrong reasons. Wrangling between the International Monetary Fund and the European Union threatens to prevent a bailout deal by the time euro-region finance ministers gather in Brussels on Feb. 20. Both sides should acknowledge the efforts Greece has made to boost tax revenue, sell off state assets and return the economy to growth. The EU should sign off on the next aid payment, paving the way for Greek bonds to be considered for the European Central Bank's bond-buying program.

There's a risk that the debate drags into the summer, when rising Greek debt repayments will add renewed urgency to the debacle. Cumulatively, Greece has to repay almost 23 billion euros ($25 billion) of bond principal by the end of August, according to data compiled by Bloomberg. The peak comes in July, when the nation owes more than 8 billion euros to its creditors:

July Is the Cruelest Month

Greek bond principal repayments in coming months

Source: Bloomberg

Greek bond yields are soaring amid the confusion. The two-year yield climbed to 9.74 percent on Tuesday, a jump of two percentage points in two weeks, while the 10-year yield reached a three-month high of 7.84 percent.

On two visits to Athens, in 2015 and at the end of 2016, Greek officials repeatedly told me that the return of bank deposits would signal a renewal of domestic confidence in the nation's economic future. Unfortunately, the opposite is happening.

In December, Greeks withdrew an additional 3.5 billion euros from the banking system, driving the total amount of deposits down to its lowest level since November 2015. So 2016 was the third consecutive year of outflows from the banking system, with 1.6 percent withdrawn. This decade, deposits have halved:

A Lost Decade

Greek bank deposits

Source: Bank of Greece via Bloomberg

The IMF's board met on Monday to discuss Greece; the accompanying press release suggests growing divisions on what should happen next. "Most executive directors agreed with the thrust of the staff appraisal while some directors had different views on the fiscal path and debt sustainability," the statement says.

While most of the board regarded a primary surplus of 1.5 percent of gross domestic product as acceptable, some favored a 3.5 percent surplus -- a level few countries have ever achieved, and one which Greece seems unlikely to achieve. The IMF has previously stuck to the 1.5 percent scenario, which it says wouldn’t require additional austerity measures. The EU sees a 3.5 percent surplus as achievable.

Greece's European creditors want the IMF to sign off on its review of the nation's 86 billion euros ($92 billion) bailout before disbursing the next tranche of aid. The IMF, though, sees a need for "rationalizing pension spending," a broader base for personal income taxes, and an acceleration in structural reforms, particularly in labor market regulations.

It also repeated its call for debt relief, saying that "further relief may well be required to restore debt sustainability," as it sees the nation's debts rising to 275 percent of GDP by 2060, up from a projected 181 percent this year.

With elections approaching in the Netherlands, France and Germany, plus a potential scrap looming over Britain's bill for leaving the EU, the last thing the bloc needs is another Greek crisis. But without an acknowledgement from its creditors that the economy's scope to generate a budget surplus is limited and that further debt relief is needed, Greece will remain a basket case.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

    To contact the author of this story:
    Mark Gilbert at magilbert@bloomberg.net

    To contact the editor responsible for this story:
    Therese Raphael at traphael4@bloomberg.net

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