Keeping Greece in the euro: Mission impossible?

CNN Money

By Mark Thompson

The make-or-break moment in the long running saga over Greece's debt is looming.

Prime Minister Alexis Tsipras met German Chancellor Angela Merkel Monday in a bid to bridge a growing gulf between Athens and its European creditors.

Tsipras arrived in Germany -- the biggest single contributor to Greece's 240-billion euro ($262 billion) international bailout -- warning that Athens will find it "impossible" to avoid defaulting on its debt repayments without more cash from Europe.

"Servicing these repayments through internal resources alone would, indeed, lead to a sharp deterioration in the already depressed Greek social economy -- a prospect that I will not countenance," Tsipras wrote in a March 15 letter to Merkel first published by the Financial Times.

Greek government spokesman Gavriel Sakelarides confirmed the content of the letter. He said Tsipras was not threatening Germany but rather laying out the "reality" facing his country. "There is a liquidity problem and political initiatives must be undertaken," Sakelarides told Greek TV.

And here's the problem: Europe will only hand over more cash once it's satisfied that Greece is implementing reforms it promised in February to win an extension of its financial lifeline to the end of June.

Pressure on Merkel to hold a firm line with Greece is coming from two sources: German taxpayers who don't want to throw good money after bad, and European states who have stuck with painful austerity and believe they're beginning to see the benefits of those reforms.

Tsipras said he hadn't come to Berlin looking for money but rather to try to establish common ground and understand "what we agree on and what we disagree on," he told reporters.

Merkel said she wasn't in a position to promise any more help to Greece -- that would be a decision for eurozone finance ministers as a group. But she twice referred back to the February agreement, which Greece has so far failed to fulfill.

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While the political wrangling continues, Greece's financial position went from bad to worse. Tax revenues fell short of forecasts by more than one billion euros in the first two months of the year, the economy is shrinking again and cash is leaving the country.

"Tonight, Prime Minister Tsipras has potentially his last chance to convince German Chancellor Merkel that he will ultimately do what it takes to keep Greece in the euro," noted Christian Schulz at Berenberg bank.

"If he fails to inspire any kind of trust in Berlin, securing the necessary funds to keep going, let alone the inevitable third bailout in July, will be a fantasy."

Greece repaid more than 900 million euros to the International Monetary Fund last week, but faces another repayment demand of about 470 million euros on April 9. Some analysts believe the cash crunch could come even sooner than that.

With its budget surplus fast evaporating, and unable to borrow from international markets, Greece's anti-austerity government would then face a stark choice: default or slash spending at home.

Some relief could come from the European Central Bank, if it agrees to relax the conditions attached to funding Greece's banks. ECB President Mario Draghi said Monday that he was prepared to do so, but Greece must first commit to honor its obligations to all creditors, and prove that it is meeting the conditions of its bailout program.

-- CNN's Elinda Labropoulou in Athens contributed to this article.