Greece Faces Cash Crunch as IMF Payments Come Due

New Greek government stands little chance of receiving help from eurozone soon

The Wall Street Journal

By MATTHEW DALTON and  VIKTORIA DENDRINOU

March 2, 2015 4:37 p.m. ET

BRUSSELS—Greece faces a cash crunch in the coming weeks with little hope of financial help soon from the rest of the eurozone, threatening a serious blow to the country’s fragile economy.

Though the Greek government secured an extension of its bailout program last week, that doesn’t give Athens access to cash pledged to it from the eurozone and the International Monetary Fund. To unlock that money, it will need to agree on a revised program of austerity measures and economic overhauls with its creditors, and pass them into law.

That process is likely to take months of fraught negotiations—but Greece doesn’t have that kind of time. It must repay the IMF €1.5 billion ($1.7 billion) in March alone, with the first installment of nearly €300 million due on Friday.

Caught between dwindling tax receipts and requirements to repay debt soon to the IMF, Athens could face trouble paying its bills before the end of March, eurozone officials say.

That would leave the country’s new left-wing government with some grim choices: raid existing government cash reserves and further delay payment to its suppliers, a tactic repeatedly used by previous Greek governments that has further strangled the economy over the last five years.

Greek Finance Minister Yanis Varoufakis, in an interview with the Associated Press over the weekend, said the government would make debt payments to the IMF its priority, vowing to “squeeze blood out of stone” to repay it. A Greek government spokesman couldn’t immediately be reached for comment.

The eurozone is unlikely to give Athens a break, even if it is running out of cash, said Valdis Dombrovskis, vice president of the European Commission, which is charged with monitoring Greece’s performance under the program along with the IMF and the European Central Bank.

“In this case, they will need to speed up program implementation,” Mr. Dombrovskis said.

Bickering between the government of new Greek Prime Minister Alexis Tsipras and the rest of the currency bloc continues despite the deal to extend Greece’s bailout. Mr. Tsipras on Saturday accused the conservative governments in Spain and Portugal of conspiring against Greece and trying to “drive us into financial asphyxia.” Spain and Portugal filed protests with the commission in response on Monday. Martin Jäger, spokesman for German Finance Minister Wolfgang Schäuble, said Mr. Tsipras’s comments represented “very unusual foul play.”

Nor is Athens likely to be granted its preferred option: an increase in the €15 billion cap on the amount of short-term Greek government debt that Greek banks are allowed to buy. Eurozone officials say the ECB, which now regulates banks across the eurozone, doesn’t want to let the banks load up further on the risky debt of its government.

That leaves Athens with few options, none of them appealing. The government may have €2 billion in cash left over from last year, estimates James Nixon, chief economist at Oxford Economics, a consultancy based in the U.K. Another €2 billion may be left in various government funds, such as Greece’s beleaguered social-security funds, and the government could find another €1 billion by delaying payment to suppliers, Mr. Nixon said.

But these measures would likely starve the Greek economy of much-needed cash and tip the economy back into recession, if it isn’t already there, he said.

“The financing through to the summer is inevitably going to require quite a sharp increase in arrears if they are going to make their repayments to the IMF,” Mr. Nixon said. “Even if Greece manages to survive, it will be seat-of-the-pants, finger-tips-on-the-edge-of-the-precipice, which will really exact a toll on the rest of the economy.”

A senior eurozone official said the Greek government’s existing cash reserves might last until May, provided its tax receipts don’t continue to collapse. Eurozone officials have expressed exasperation with promises from the new government to allow people to pay late taxes in up to 100 installments.

“If they continue doing stupid things, like inciting everybody to not pay taxes,” the official said, “then they are in trouble already in late March.”

The Greek government has delayed payments to suppliers and refunds owed to taxpayers throughout the crisis, while it awaited loan disbursements from its creditors, who were wary of giving more money to Athens.

Economists say the economy has been hard hit by these delays, which have extensive knock-on effects: Suppliers that aren’t paid by the government, in turn, struggle to pay their suppliers and employees.

That problem became particularly acute in 2012, when Greece went for months without a new loan disbursement from the eurozone and the IMF.

Overdue payments swelled to €9.4 billion at the end of the year, up from €5.4 billion in 2010.

This time around, the negotiations to get money flowing again to Athens are likely to be much tougher. And trust between Mr. Tsipras and the rest of the eurozone is almost nonexistent.

“I think the market has been relatively relaxed after last week’s Eurogroup, but the mood music continues be quite negative,” Mr. Nixon said, referring to the meeting of eurozone finance ministers that agreed to the bailout extension. “This still has plenty of capacity to become quite serious, very quickly.”

Write to Matthew Dalton at Matthew.Dalton@wsj.com and Viktoria Dendrinou at viktoria.dendrinou@wsj.com