14 May 2015

Bruegel: Greece’s hot summer

After a Eurogroup meeting that appears to have not achieved much progress, and after Greece met its most recent payment due to the IMF drawing on its SDR accounts, the Greek Ministry of Finance published the preliminary figures for budget execution over the period January - April 2015. There are positive signs, also on the revenue side, but the cash situation remains precarious ahead of forthcoming deadlines.

Figures confirm the pattern already observed last month, with a marked improvement in the primary balance achieved mostly via expenditure cuts and a more limited improvement in revenues.

The State budget balance records a deficit of EUR 508 mn over January- April 2015, against the target of deficit of EUR 2.9 bn set in the 2015 budget, and significantly lower than for the same period of 2014 (when the deficit was EUR 1.15 bn). The State budget primary balance records instead a surplus of EUR 2.16 bn over the first four months of the year, against the target primary deficit of EUR 287 mn. This implies that in cumulative terms the State primary balance has over-performed the target by as much as EUR 2.45 bn

Source: Ministry of Economy and Finance, Greece

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The government plan to draw on local governments’ reserves seems to be failing, as reports suggest that so far, only 2 out of 325 mayors across Greece have accepted to hand over their spare cash. In the meantime, the capital flight is reportedly worsening (with Greek savers withdrawing their money and buying fixed assets such as cars) and the ECB is considering raising haircuts from around 23% currently to between 44% and 80%, which bank officials say would effectively deprive the local system of access to Eurosystem liquidity. All things considered, it really looks like we are in for a very hot summer.

Full article (with charts) on Bruegel.

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