Greece avoids domestic default as cash scramble gets desperate

 

Athens manages to pay its latest bi-monthly wage and pensions bill but could force its foreign embassies to hand over their excess cash reserves

Greece scraped together enough funds to avoid a domestic default on Friday, as the near-bankrupt government bought itself vital breathing space before a crucial series of international obligations are due next month.

Athens successfully paid out half of its monthly public sector wage, pension and social security bill, according to the Greek ministry of finance. The obligations are thought to be around €500bn.

The government, which has been without international aid since August, has resorted to desperate measures to continue paying its civil servants and pensioners.

More than a 1,000 local authorities have been forced by presidential decree to transfer their excess cashreserves to the central bank to allow the state to keep its head above water.

In its latest ploy to raise cash, Athens has requested its foreign embassies and consulates also hand over their spare funds to the government.

But municipalities are resisting the confiscation, arguing it violates the government's fiduciary duties and falls foul of the constitution.

"Running out of money is a relative concept - there is no finite moment the government will run out of cash," said Justin Knight at UBS.

"By many measures, Greece has already run out of money and could be on the verge of issuing IOUs as they were forced to do to the pharmaceutical sector in 2011", said Mr Knight.

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Syriza has long fallen into arrears with many of its government suppliers, and faces a €1.5bn repayment to the International Monetary Fund in June.

"No-one can say with certainty how much money Greece still has and the debt schedule for the next months is alarmingly heavy," said Eirini Tsekeridou at Julius Baer.

Delayed payment to contractors has allowed the treasury to boast a surplus over the first four months of the year. Figures from the central bank showed Athens' primary budget surplus was €1.05bn in April.

However, these arrears will only intensify Greece's recession by constraining spending in the domestic economy, warned JP Morgan.

Greece officially fell back into recession in the first quarter of 2014, and "pressures on central government cash flow, pressures on the banking system, and the political timetable are all converging on late May-early June,” said David Mackie and Malcolm Barr.

Greece avoids domestic default as cash scramble gets desperate - Telegraph