Time and Cash Running Out for Greece

After Greece coughs up $504 million to make its next debt payment to the International Monetary Fund (IMF) on Thursday, April 9, the country may soon face the difficult choice all bankrupt countries eventually have to make: pay debts, or pay pensioners?

Greek officials initially had threatened to delay the IMF payment in hopes of getting the next installment of $7.7 billion in bailout money from the European Union. But last Sunday, Finance Minister Yanis Varoufakis reassured IMF chief Christine Lagarde that Greece would indeed send the money.

Greece is quickly running out of cash, even as negotiations with the European Union drag on. On Wednesday, Greek Prime Minister Alexis Tsipras went to Moscow to meet with Russian President Vladimir Putin to bolster diplomatic ties and — potentially — pave the way for some future financial assistance. Tsipras has already irked European officials by criticizing EU sanctions on Russia over Ukraine; this week’s cap-in-hand visit has further strained ties between Athens and Brussels.

Greek officials say they aren’t seeking financial aid from Russia. But close ties between the left-wing Syriza party and many Russian grandees — not to mention the allure of lucrative energy-related carrots that Moscow has repeatedly dangled — spark plenty of angst over cozier ties between the two countries.

While Greece has been able to scrape together enough for the IMF payment by draining financial reserves throughout the government, from the central bank to job centers, it’s unclear where it will find the money to pay public-sector workers — let alone the billions of dollars in debt due over the next couple of months.

“The things they are doing now are suggestive of a country that is out of cash,” said Robert Kahn, a senior fellow at the Council on Foreign Relations who has worked for the World Bank and the IMF. “They’re really scraping the bottom of the barrel.”

The cash crunch raises the threat — yet again — of Greece dropping out of the currency union this summer. In the short term, it raises the prospect that the government could start doling out IOUs instead of paychecks to its public workers and suppliers. That’s unlikely to sit well with a Greek electorate that voted to get the country out of the economic restraints imposed by the European Union.

Tsipras was elected on promises to negotiate the country out of the painful austerity measures, including budget cuts and tax increases, imposed as part of the country’s 240 million euro bailout from the European Union, which was first negotiated in 2010 and extended in 2012. When Tsipras took office in January, he said he would “radically change the way that policies and administration are conducted.”

Now, almost three months later, Tsipras and Varoufakis look to be no closer to finding compromise with their EU creditors. The Greek government is seeking to relax the terms of the previous bailout, but European negotiators don’t want to keep giving Athens money without explicit plans for austerity and reforms aimed at righting the economy over the long term. The latest Greek proposal was dismissed by European officials as not detailed or comprehensive enough. Germany, in particular, has insisted that Greece stick to austerity and pay its debts, despite evidence that this program is only deepening Greece’s economic woes, not to mention bilateral ties.

The uncertainty over whether Greece will get the next tranche of bailout money has exacerbated its economic problems and threatens to push the country back into recession. Depositors have pulled their money out of Greek banks; people have stopped paying their taxes; and investors have lost confidence. Less tax revenue hastens the day when Greece will run out of money.

All hopes now are pinned on April 24, when European finance ministers meet in Riga, Latvia. If Greece doesn’t get a deal then, the country’s new currency might be the IOU.

Photo credit: ARIS MESSINIS/AFP/Getty Images