If You Think Greece’s Crisis Will End Soon, Think Again

by Ian WishartNikos ChrysolorasAndrew Mayeda

June 8, 2015 — 1:01 AM EEST Updated on June 8, 2015 — 10:38 AM EEST

Bloomberg

Frustrated by Greece’s cat and mouse game with its creditors? Get used to it.

Even if Prime Minister Alexis Tsipras clinches as much as 7.2 billion euros ($8 billion) from a bailout tranche creditors are withholding, he’s going to need another cash infusion shortly thereafter.

What will ensue is a renewed battle after almost five months of trench warfare. The beleaguered country requires a third bailout of about 30 billion euros, according to Nomura International Plc analysts Lefteris Farmakis and Dimitris Drakopoulos. The final bill will depend on whether fellow euro member states grant Greece any debt relief, and what form that relief would take, they said.

Tsipras says any aid must be on his terms rather than those of governments whose taxpayers have forked out billions in the past five years to keep Greece in the euro. The standoff has triggered an unprecedented liquidity squeeze, pushing the country’s economy back into recession, and thus raising the total sum of additional loans Greece may need after its current euro-area-backed bailout expires this month.

“Any plausible deal at this stage is unlikely to do enough and it’s unlikely to be the end of the matter,” said Simon Tilford, deputy director of the Centre for European Reform in London. “This could just play out again and again.”

Bailout Saga

The latest episode in the five-year saga has focused on releasing the final tranche of Greece’s second bailout. The amount at stake roughly equals the bond repayments that Greece needs to make to the ECB in July and August.

Here’s the problem for the policy makers struggling to avoid a default in Athens: Even if Greece muddles through until August, it faces a financing shortfall of about 25 billion euros through the end of 2016. That’s likely to worsen as the economy slides deeper into recession and tax revenue shrivels.

Tsipras, 40, faced a united front from Group of Seven leaders at the weekend, with U.S. President Barack Obama putting concerns over the impasse onto the agenda of a summit hosted by German Chancellor Angela Merkel.

There was another tense exchange between both sides, with Tsipras telling the Greek Parliament on Friday the latest offer from creditors was unacceptable and he hoped it was just a “bad negotiating trick.” European Commission President Jean-Claude Juncker, who met Tsipras last week, said the prime minister had misrepresented aspects of the talks and he should observe some basic rules to maintain good relations.

Divisive Debt

Negotiations over a third bailout would give Tsipras an opportunity to push the key demands -- debt relief and more generous pensions -- that propelled him to power in January and that have isolated him in the euro area.

Then there are the fractures on each side of the negotiating table. Among creditors, the International Monetary Fund says Greece’s financial burden may be unsustainable; the EU says it needs to honor its commitments.

On the Greek side, Tsipras’s Syriza coalition is plagued by infighting over possible concessions, differences that may ultimately force him to call new elections.

IMF Wildcard

Another potential wildcard with any agreement with creditors is whether the IMF coughs up its portion of the existing bailout.

The IMF typically requires countries to have enough financing to get them through at least a year, before disbursing any loans. IMF staff also analyze whether debt is sustainable over the medium term. The IMF believes Greece needs to establish a credible target for a budget surplus backed by changes to pensions and other reforms, an official involved in G-7 talks said in Dresden last week.

“The dependence on our creditors will remain for two years in the best-case scenario,” said Aristides Hatzis, associate professor of law and economics at the University of Athens. “Greece is going to need cheap loans for the next two years.”