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Greece – Final Countdown or just buying a bit more time?

The Facts

Reports on progress in the negotiations and the chances of a deal are mixed. Greek government officials appeared optimistic on Monday night that an agreement with creditors is possible within the next ten days. On the other side, European and IMF officials are concerned about slow progress, despite some recent improvements, warning that Greece is running out of time and cash.

Greece must repay four loans totalling 1.6 billion euros to the IMF next month, starting with a 300 million euro payment on June 5. The Greek government stated on Monday that Greece cannot honour its debt obligations without financial aid. Several senior government officials noted that the country had no way of paying the 300 mil payment due next week and if things go wrong they will choose to pay salaries and pensions over debt.

Still, the government on Monday reiterated that it would try to make the payment and Finance Minister Yanis Varoufakis expressed confidence a deal with lenders would be struck in time to avoid default. However, Greek Alternate Minister of Revenue (Dimitris Mardas) ordered the transfer of 1,039 inactive bank accounts of public authorities in a special account in the National Bank of Greece.

The Opinions

1) Morphic’s Greek expert Irene Kardasis

Greece will reach an agreement with its creditors sooner or later with mid June being the most probable date as the current bailout program expires at the end of June and that gives Greek and European parliaments as much time as needed to approve the new one. All parties will end up compromising getting a “mutually beneficial solution” (Prime Minister Tsipras loves this phrase).

The Greek government is buying time. It wants to show it is trying hard by not backing down on its so called red lines to prove that it is different from previous governments and sticking to its promises.  Don’t you find impressive that Greece made it this far without official loan disbursements—the last IMF disbursement took place almost a year ago! The May 12 payment to the IMF came at risk before an idea to use Greece's SDR reserve allocation saved the country at the last moment (do not underestimate Finance Minister Varoufakis).

If all else fails, the government will pass the responsibility to the people through a referendum. Recent surveys show that 70% of the population wants to stay in the Eurozone. Economic analysis may be right in saying that Greece has to leave the EU and that this is the best solution for everybody, but Europe is more about politics, game theories, psychology and interests, with no one keen to see the impact if Grexit actually happens.

2) Morphic’s risk averse CIO Jack Lowenstein

The Europeans have already written Greece off and have gotten very irritated with the negotiating tactics from Athens.

If there is a deal it will be last minute, but probably not lasting.

If there isn’t a deal soon, one weekend over the next month there will be “Bank Holiday” after which Greece will return to the Drachma. As part of this Greek bank depositors will get a “haircut” in terms of being forced to convert their deposits into new equity in their banks in a similar way to what happened in Cyprus, but on a much bigger scale.

So the big question for Greek Australians who have money in banks in Athens, is:  “Why take this risk?”

From our Fund’s perspective we have cut our exposure to Europe a bit, and invested a small amount in out of the money puts over European Banks