Financial Times: Athens raids public health coffers in hunt for cash

24/3/2015

By Kerin Hope, Peter Spiegel and Claire Jones

Greece’s government has raided the coffers of its public health service and the Athens metro as it widens a hunt for funds to keep itself afloat and service debts.

Athens faces a €1.7bn bill for wages and pensions at the end of the month and then a €450m loan payment to the International Monetary Fund on April 9. Greek government and eurozone officials believe Athens does not have funds to cover both.

In another constraint on Greece’s ability to raise cash, the European Central Bank decided to impose stricter curbs on the issuance of short-term government debt.

EU officials expressed hope that a marathon Monday night meeting between Alexis Tsipras, the Greek prime minister, and his German counterpart, chancellor Angela Merkel, would spark long-stalled talks over economic reforms Greece must implement to unlock €7.2bn in frozen bailout aid.

Athens has promised to deliver a list of reforms to eurozone authorities by Monday. But officials cautioned that the list would still have to be agreed with bailout inspectors before eurozone authorities could make progress on any deal to free up new funding.

Though Mr Tsipras discussed his reform plans with Ms Merkel on Monday night, there were few signs that talks in Athens with bailout inspectors had become more active following the Berlin meeting.

“The big ‘if’ is that they seem to move at such a glacial pace,” said an official involved in the negotiations.

Greek authorities have also been seeking €1.2bn in funding that they believe was wrongly taken out of the country’s bank recapitalisation fund by eurozone authorities. But EU officials said a quick decision on the matter was unlikely and even if Athens was awarded the cash it could only go towards bank rescues, not general government coffers.

In the absence of progress, some EU officials were accelerating their preparations in case Athens runs out of cash before it agrees a reform programme. In Brussels, European Commission officials have begun looking again at EU law governing capital controls in case the growing uncertainty, or a non-payment to the IMF, spurs a renewed run on bank deposits.

In Frankfurt, the ECB informed Greece’s biggest banks that it was making legally binding the ceiling it imposed last month on their holdings of short-term Treasury bills.

Such a move will limit the Eurosystem’s exposure to the Greek government should it fail to pay its debts. But it will also close off another source of financing on which Athens had been relying.

Greek banks hold about €11bn in Greek T-bills, and Athens must roll over two T-bills totalling €2.4bn in mid-April.

“The Greeks are one minute away from midnight,” said Mujtaba Rahman, head of European analysis at the Eurasia Group consultancy. “The government is at the edge of the precipice and may well go over.”

In a sign that the cash crunch has become more desperate, officials at Greece’s state healthcare service, were asked on Tuesday to hand over a €50m reserve for paying arrears owed to medical workers.

Earlier this month about €150m of budget funding for hospital supplies was unexpectedly withheld, according to health ministry officials.

“The national healthcare service is already desperately short of resources after four years of cuts but both these moves are unprecedented,” one official said.

The government has so far rounded up more than €600m of cash held by state-owned corporations, including contributions from the Athens metro company, the state electricity supplier, PPC, and the Athens water utility.

About €300m in EU subsidies due to farmers has been diverted to cover salary payments to civil servants, according to people briefed on how the cash crunch is being handled.

Some officials believe a failure to pay the IMF in April would not be catastrophic: under fund rules, a non-payment is not immediately considered a default, though it would prevent Greece from accessing any IMF bailout funding. Half of the €7.2bn tranche Athens is seeking comes from the fund.

A failure to pay either of the T-bills — one is due on April 14, the next on April 17 — would probably bring wider upheaval since they could trigger clauses in other debt obligations that would make them due immediately.

The ECB ceiling could make repayment of the April 14 bill particularly challenging. Greek banks have been the primary buyers of such debt and have essentially rolled over their existing holdings during recent T-bill auctions. But at least 20 per cent of the April 14 bill is held by investors outside Greece who are unlikely to roll over their holdings and Greek banks are now barred from buying up the difference.

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