Greece Will Default in May Without Another Bailout or Change in Terms

Cash flow analysis shows Greece is in serious trouble again in spite of having a current account surplus.

Specifically, Greece needs a change in payback terms or another bailout or it will default in August, if not May. I use the words "will default" imprecisely.

The only way Greece is making loan payments now is with money from the Troika.

The scam works like this: bailout money is allegedly given to Greece, but Greece cannot really touch it. Instead the money goes right back to the Troika for interest and capital payments, with perhaps a miniscule portion finally getting to Greece.

Realistically, Greece defaults on every payment already.

Greece Bailout Cash Flow

Even this game is in trouble now as Greek Cash Flow Charts show.

Just two days before New year 2014, Antonis Samaras told his People that Greece would leave its bailout programme next year without needing a third aid package. “In 2014 we will make the big step of exiting the loan agreement,” said the Greek PM in a nationally televised address. “In 2014, Greece will venture out to the markets again [and] start becoming a normal country… There will be no need for new loans and new bailout agreements”.

But figures obtained by The Slog show he lied.



Mr Samaras told the Greeks during October that debt relief would come by Christmas. It didn’t. He is now suggesting there is no budget shortfall. There is.

He says the much-trumpeted €800m surplus obtained last year will help solve the problem. It won’t.

The total payments due in 2014 are €31.6bn. The total loan funds available to meet that sum are €17.5bn. €0.8bn of Greek surplus doesn’t even make a dent in it.

This second chart highlights when the inevitable shortage will become a default issue:



On 20th and 21st of the month, three whopping capital and interest payments become due. The largest of these – a €5.2bn sum – is also at a floating rate, and so could be bigger if confidence fails in the meantime. The funding gap to avoid default here is almost as big as that one sum due – at €4.7bn.

With that help available (and no yield rises) Athens could limp through to Q3. But then on 20th August things go badly pear-shaped again, when two further biggies hit the due date. The funding gap here is €5.6bn. Even if the Troika allowed Greece to bring the Q4 support forward, the gap would still be €3.8bn.

So in the very best, most optimistic scenario, Antonis Samaras needs €8.5bn in fiscal surpluses, and he needs them over the next 16 weeks.

The major point of the primary current account surplus is that Greece now obtains as much in tax revenues as it needs to finance current debt (not counting interest and debt repayments to the Troika).

If Greece can remain in a state of surplus, it can tell the Troika to go to hell, declare the bailout debt null and void, and shed its onerous debt burden. I suggest Greece should do just that.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com