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Thursday, April 05, 2012 2:12 AM

Crunch Time for Greece (Case for Bank Holiday and Eurozone Exit Now): Disbursements to Greece by the EFSF and IMF "Conditional on Compliance with Conditionality"

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If the second half of the title to this post seems silly, it is because it is silly. However, "disbursements to Greece by the EFSF and the IMF will still be conditional on compliance with conditionality" is an exact quote from The Second Economic Adjustment Programme for Greece, March 2012 by the European Commission.

I advise not attempting to read the document. It is a mere 195 PDF pages long. However, a tip of the hat to reader Brett who did manage to slog through the entire document to discover that gem on PDF page 55.

Brett also discovered some rather interesting facts regarding Greece's inability to make needed bond rollovers.

Brett writes ...

Hello Mish

I have spared you having to read the attached 195 page sleeping pill and I have discovered a major problem.

The first disbursement to Greece was on March 20. Disbursements are paid quarterly and no sooner, which effectively means that June 20 is the earliest next disbursement due date. Greece was originally supposed to receive 74 billion in the first tranche,(Page 56 on the document), it received 7.5 billion. Someone needed to put the decimal point one place to the right.

We know Greece is insolvent and it raided University accounts held at the Bank of Greece to effect the March bond swap. We know the bond swap offer (450 million Euro) for issue XS0147393861 was rejected and is payable on May 15 (6 Weeks to go). Somehow it has to pay this before the next tranche.

Of the 7.4 billion it received in the first tranche a Greek government official stated that "Greece would use this money to pay 4.66 billion euros to the European Central Bank and other eurozone national central banks for the capital amount of a three-year bond that expired yesterday".

This leaves 2.74 billion over 3 months to survive with. Even if you believe the 1% deficit for 2012 forecast (complete nonsense on page 99) Greece is in arrears 1.25 billion per month. This consumes entirely the remaining distributed money from the EU & IMF. Plus there is 5.2 billion Euros of Treasury bills due in April and May.

Greece 26-Week T-Bills

Greece 13-Week T-Bills

Below is my favorite line from the document.

However, the disbursements to Greece by the EFSF and the IMF will still be conditional on compliance with conditionality.

Why even bother?

March Bond Swap

Greece did manage to make the March bond swap but only by raiding University accounts held at the Bank of Greece. I was aware of this but have not commented on it yet. Now is as good a time as any.

The illegally denied default of Greece entered a dramatic new phase this afternoon with the revelation by mainstream Greek public health website Health News that, shortly before midnight on March 8th – the eve of Greece’s psi completion on Friday March 9th – on average 70% of public utility funds in various large, interest-bearing accounts at the Bank of Greece were raided. These included most of the State’s regional hospital budgets, various universities and (it is alleged) at least one utility company.

The shortfalls came to light late last week and this morning as various hospital purchasing cheques in particular began to bounce. The monies – estimated by one source to total some 1.4 billion euros – appear to have been used to pay off the tiny minority of private sovereign creditors who, under the original terms of their bond purchase, were entitled come what may to full payment of the bond’s yield entitlement.

Setting aside the amoral audacity of this act, it does yet again raise the issue of a Greece so utterly lacking in any real funds in the real world, that to pay off a minute proportion of the bondholders it had to resort to such a desperate measure.
From Athens News:

‘Six of the country’s universities say they face immediate closure after the recent bondswap reduced their assets to zero. An emergency meeting of university rectors on Tuesday heard that only 33m euros remained of 120m euros that 17 Greek universities had deposited with the Bank of Greece for their operating expenses, while six university accounts were now completely empty meaning they would soon be unable to stay open.’
What Assets Can Greece Raid Now?

I thought there was a strong chance Greece would declare a bank holiday in March. It did not happen. Easter, this weekend, is also a reasonable bet, but I will not go far as to say it is a likelihood.

Regardless, somehow Greece needs to come up with money for April 20 and May 12 redemptions.

Is there another rabbit in the hat? I really do not know, but I do know that hats cannot hold an infinite supply of rabbits. I also know that the last trade date on Greek 1-year bonds was at 1,143% way back on March 9.

That should not inspire confidence in Greece or in rabbits.

Mike "Mish" Shedlock
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