Greece’s cash crunch is getting serious


Treasury bill auctions are supposed to be boring and routine, so it isn’t encouraging that Greece’s attempt on Wednesday to sell just shy of a billion dollars’ worth of short-term paper will likely get outsize attention.

Right now, it doesn’t look like investors expect Greece’s auction of 875 million euros of 178-day Treasury bills to fail or for Greece to miss its €460 million International Monetary Fund repayment the next day, said David Rodriguez, quantitative strategist at, in a note.

But this belies just how nervous the market is right now, Rodriguez and others said. How much on edge? Rodriguez points to this chart:

It shows investors and traders expect the next two weeks as much more uncertain that the coming year.

As deadlines surrounding Greece approach without a clear solution, increased risks could make for increasingly illiquid currency-market conditions as banks remain on the sidelines, he said. That means the euro EURUSD, -0.01% could both rally and fall sharply on headlines.

IMF Managing Director Christine Lagarde on Sunday said she was reassured by Greek Finance Minister Yanis Varoufakis that Greece will make its Thursday payment.

Beyond this week’s bill auction and the IMF repayment, Greece sees €1.4 billion of short-term Treasury bills mature on April 13, requiring the country to sell more debt to fund that, Rodriguez notes, while another €1 billion in notes matures on April 16.

ECB holds the key

“Greece seems unlikely to default this week, but no resolution to its financial stability beyond next week is in sight,” said Carl Weinberg, chief global economist at High Frequency Economics, in a note.

Greece’s Treasury bills will continue to be rolled over through fresh debt sales as long as the country’s banks remain liquid, he said. But that, in turn, depends on the European Central Bank.

Greek banks, which have suffered from months of deposit flight, are dependent on emergency lending assistance, or ELA, from the Bank of Greece. But the Bank of Greece can only provide that assistance with the permission of the ECB, which can pull the plug if it determines that Greek banks aren’t solvent.

If that were to happen, Greek banks would be unable to buy the paper on offer and the Greek government would be unable to make its repayment in cash, putting Greece in default, Weinberg said.

If that were to happen, the Greek government would likely institute aggressive capital controls in an attempt to keep money from fleeing the country and save major institutions from bankruptcy, Rodriguez said.

There is a danger that without a resolution to the debt negotiations, capital controls could become a “self-fulfilling prophecy,” Rodriguez said. A Greek national bank holidays on Friday and Monday, in observance of Orthodox Good Friday and Easter, could exacerbate those concerns if savers drain savings accounts ahead of the long weekend, he said.

Source from : MarketWatch