Sunday, 19 April 2015


When will the Greek government run out of money? It's hard to know how to begin answering the question, but this has not stopped anyone from trying to guess over the last two months.

First, Bloomberg ran with February 25th; then Reuters ran with April the 9th; then Reuters ran with the 20th of April and Bloomberg ran with April 24th. The Beeb have their sights on the 12th of May, when the IMF needs to be repaid. Bruegel did the math on our financial assets here and found that Greece could stay afloat till the summer. The WSJ narrowed this down to July 20th, when a large amount of ECB debt becomes due, on the back of a major round of T-bill repayments. The Guardian seems to agree.

This speculation is sometimes driven by statements by Greek officials (typically unsourced and subsequently denied), but mostly by analysts poring over our schedule of repayments to the EU, the ECB and the IMF and trying to work out whether we'll have scraped enough money together from our tiny surpluses, predicted to come in at EUR200m-300m per month in the second half of the year, and T-bill auctions (which our own banks can no longer be forced to absorb due to the ECB) to pay these off. The speculation suits both sides, and is part of their negotiation tactics; since neither side wants Greece to default, underlining just how close the country is to default is important for both. There are reports of cautiousness and fatigue around such estimates, but they just keep coming.

You can compare and contrast the main repayment timelines here, here and here. You can also see the Economist's very recent and complete estimates of pending payments below, and contrast them with Greece's recent record of monthly surpluses. The reason why March, April and May were such popular targets for default theorists is partly that a very substantial amount of debt came due in March and partly that the three months are persistently cash negative for the Greek government, and there's three of  them in a row. Even Greece's original bailout request came in April 2010. But the barrage of large repayments in the summer is even more compelling.

If you ask me, this method of comparing payments due with monthly surpluses is a little misguided. It works well for people used to commenting on highly leveraged organisations such as major banks. Instead, Greece is far more likely to run out of  money the way a medium-sized business would - in denial, tapping suppliers for credit, leaving staff unpaid and dodging debt collectors. This kind of default is messy - suppliers will down tools and refuse to provide further goods and services; staff will do likewise, e.g. through industrial action; and creditors will use their influence to cause difficulty and embarrassment. As a rule, messy defaults tend to amplify the original cash shortfall, as planned revenues remain unrealised or uncollected and expensive patches are needed to deal with interruptions in vital services.

The first sign of a messy default was the Greek Government's preparations to seize the surpluses and/or reserves of General Government entities. You can see these cash positions (currently up to Q3 2014, which isn't helpful) here, or check out the Bruegel article cited earlier. The Greek Government is already working in this direction, e.g. passing a law allowing it to force pension funds to buy T-bills, and mulling raids on the cash reserves of state enterprises. and other entities. But it's not just suppliers that can be tapped for credit - it's workers, too.

What might surprise outsiders is that Greece had a tradition of leaving general government contractors unpaid for a long time even in the good days - especially when their programmes had complex funding structures. But pockets of unpaid labour have started to spring up in recent months, including hospital doctors, auxiliary doctors, and general practitioners tied to the health service, local authority tourism staff, social workers, local authority staff on disability inclusion programmes, psychologists working for immigrant detention facilities, archaeologists, or exam invigilators.  Most, though not all, of these have been unpaid since before Syriza came to power.

This is horrible news for the people involved, but good news for the Greek Finmin: it is much harder for him (us!) to run out of money than people expect. Once a sovereign enters this cynical looking-glass world, and learns to view their own staff and suppliers as a source of finance, all expenses become opportunities to raise cheap funding - by paying late.

Here are the payroll and procurement expenditures of the Greek government from early 2006 to Q3 2014. I use intermediate consumption as a close proxy for procurement, for which figures are not released with this frequency. The sum comes up to a cosy EUR7.3bn per quarter.

How much of this are we already tapping? In our quarterly financial accounts, you can find both the stocks and flows on a quarterly basis under 'other accounts payable' (see here for the figures*, and here for definitions). The figures show that, for the first time since at least 2006, the Greek state was net paying off creditors throughout 2014, to the tune of around EUR1bn per quarter - a shift in policy that was equivalent, in cash terms, to a small fiscal stimulus.

Unfortunately, we don't have recent figures beyond Q3 2014, but at least we can establish the orders of magnitude involved. The Greek state has never been able, post-crisis, to get away with borrowing more than a tenth of its procurement and payroll expenditure from staff and trade creditors. If it were to go back to this level now, it could count on about EUR1.8bn per quarter, albeit only for a very short period of time. It was only able to squeeze that much out of creditors back when its was creditworthy after all. Additionally, government agencies are now bound by the Late Payment Directive, which limits the terms of credit they can demand to 30 days (60 for hospitals).  A more realistic target would be to simply get back to being cash neutral, which is still a stretch and would yield closer to EUR1.1bn. That would be enough to cover our summertime debt payments, and see us through to the traditionally cash-positive second half of the year.

But here's the deal. If Greece is to use this tactic to pay off the debt coming due in June and July, it needs to start delaying payments right now - and Syriza's populist government cannot afford a buildup of many months' worth of selective defaults on its own people. Generally speaking, this kind of internal borrowing is hair-raisingly risky, and cannot be sustained for long without risking total collapse.

So the bottom line is, behind the scenes the Greek government should be drawing up a list of the people it can afford to piss off for a couple of months, and who can afford to wait. If it manages to draw on suppliers and state employees for the credit to see it through July, and if it manages to control spending thereafter despite its pre-election promises, it just might scrape by the rest of the year, after which our repayments schedule becomes quite uneventful (see below, from here). It could work, but it's fraught with threats to the economy and to social cohesion.

*I notice that, bizarrely, the stock and flow numbers don't reconcile after Q2 2014 - i.e., there are changes to the stock of trade creditors that cannot be accounted by transactions, i.e. by the state paying off its debts to suppliers. I have no idea what this means but it looks odd.

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