Greece will go bust next week, potentially pushing the highly indebted country into default and out of the eurozone and plunging the European Union into an unprecedented crisis.
The head of the Greek treasury admitted yesterday that the government could not pay its bills, including the salaries and pensions of millions of public sector workers that are due at the end of the month.
To avoid default, Athens must pay the despised creditors of the International Monetary Fund and the eurozone before its own citizens. Such an outcome would be deeply humiliating for the leftist government, elected on the pledge to put Greeks first.
Dimitris Mardas, the deputy finance minister, said the treasury coffers were €400 million short of the €1.9 billion needed to honour payroll obligations to state employees. “We have been running on empty since February.”
At a summit in Brussels today, Prime Minister Alexis Tsipras will appeal to German Chancellor Angela Merkel for more eurozone aid and warn her that Greece is on the brink of bankruptcy and exit from the euro.
EU diplomats and officials are concerned that the left-wing Syriza government will choose to pay public sector workers rather than honour payments due to the IMF of €970 million over the next three weeks, a decision that would push Greece into default.
“There is a strong faction, including the finance minister, that will not stomach the humiliation of paying back foreign creditors while Greeks go hungry,” said a diplomatic source. “This might well be the moment it ends.”
Fears that Greece is about to go bankrupt triggered market turbulence, pushing up the cost of Greek borrowing yesterday to the same levels as at the height of the eurozone crisis in 2012. Greek banks, completely dependent on emergency support from the European Central Bank, are teetering on the brink of collapse after public bodies were forced to withdraw €2.5 billion in cash reserves to help to pay bills.
After a meltdown on the Athens stock exchange, Mr Mardas attempted to qualify his remarks, saying that the state was solvent and that the government was pursuing “alternative options”. He refused to elaborate. Shut out of bond markets, Athens will run out of cash unless it strikes a deal with foreign creditors to unlock bailout aid worth €7.2 billion.
On Monday an emergency presidential decree forced up to 1500 local government bodies to transfer cash reserves to the Bank of Greece for “urgent use” by the state. The measure was demanded by the eurozone and IMF, effectively placing the funds beyond the reach of the government, and has run into fierce resistance from mayors, who see it as an attempt to put international creditors before Greeks.
Giorgos Kaminis, the mayor of Athens, said the confiscation law was “unconstitutional” and vowed to fight it. The Union of Municipalities and Communities said in a statement on Tuesday night: “We are determined to use all political and legal means we can to repudiate the content of the decree.”
Greece could go bust as early as Friday next week, May 1, if it baulks at putting a repayment of €200 million to the IMF before paying state employees. The day is a bank holiday and could be the moment Greece informs international creditors that it cannot pay back debts and moves to introduce capital controls, nationalise local banks and issue a new currency pegged to the euro as it continues to try to negotiate.
Just 11 days later, Greece must pay back another €770 million, again to the International Monetary Fund.
Yesterday the lights went out — literally — in Greece’s biggest tax office, north of Athens, after the finance ministry failed to pay long-overdue power bills. The crisis comes as the Syriza government refuses to implement politically toxic austerity measures and as eurozone hawks, led by Germany, insist that no aid will be forthcoming until it does.
The stalemate has lasted two months, and a meeting of eurozone finance ministers in Riga tomorrow is not expected to deliver a breakthrough.
“The uncertainty is hurting Greece, badly,” said Notis Mitarakis, a conservative MP. “The country cannot continue to limp. It’s high time the government gets a grip of reality and negotiates a deal fast.”
Surveys suggest that public support for the government is waning, with four in ten Greeks disagreeing with its hard-nosed negotiating stance. The same survey shows Mr Tsipras’s popularity dropping to 45 per cent from a record 72 per cent support a month ago