Bottom of the barrel

GREECE is perilously close to running out of cash. Even Yanis Varoufakis, the defiantly optimistic finance minister, has acknowledged the dire state of the country’s public finances, telling reporters after a meeting of euro-zone finance ministers on Monday: “The liquidity issue is a terribly urgent issue…from the perspective (of timing), we are talking about the next couple of weeks.” On the same day, Mr Varoufakis resorted to raiding Greece’s holding account at the International Monetary Fund to repay a €750m ($844m) loan instalment owed to the Fund itself. The unusual move was permitted under the Fund’s regulations as an emergency measure. Greece says it intends to put the money back in the account at an unspecified future date. Under present circumstances, it could be some way off.

The finance ministry has struggled since February to raise enough cash to pay pensions and public-sector salaries and at the same time meet this year’s especially tight schedule for repaying its bail-out loan. Ministry officials admitted that without the extra €650m from the holding account, public-sector workers would miss a salary payment due on Wednesday. Now they are hunting for another €650m to make sure both pensions and salaries can be paid at the end of the month. Yet talks with creditors on a new bail-out deal show few signs of accelerating. The atmosphere has improved since Euclid Tsakalotos, deputy foreign minister for economic affairs took charge of the talks, replacing the combative Mr Varoufakis. But the two sides remain far apart on vexing issues like pension cuts and VAT increases, even though they have moved closer on privatisations and this year’s fiscal targets.

Mr Varoufakis hoped that Monday’s meeting would bring a strong endorsement of progress in the negotiations. A favourable statement from the euro-zone finance ministers, he reckoned, would prompt the European Central Bank to allow Greece to sell more short-term debt, relieving the pressure on payments. Disappointingly the statement warned that “more time and effort are needed to bridge the gaps.” Wolfgang Schäuble, the tough-talking German finance minister, later drove the message home, saying “progress in the talks isn’t comparable to the improvement in the atmosphere.”

It looks increasingly hard for Greece to meet the conditions for unlocking €7.2bn of bail-out aid by the end of May. It is not just a matter of striking a deal: reforms must be legislated and implemented before the EU will release any cash. The stand-off with the EU and the IMF over new reforms has now gone on so long that Athens has been unable to access any bail-out funding for almost a year.

Another reason for the squeeze is that tax revenues have shrunk dramatically. The radical left-wing Syriza-led government that took office in January pushed through legislation allowing delinquent taxpayers to pay their debts in as many as 100 instalments, while slashing fines for anyone willing to pay up the full amount owed. A weaker economy has not helped; Greek output fell by 0.2% in the first quarter of this year.

Hospitals, universities and local authorities have been forced to transfer funds from their cash reserves to the central bank’s “common fund”, administered by the debt management agency. Unspent cash from Greece’s allocation of EU structural funds and voluntary transfers by state pension funds has also helped. The finance ministry is delaying payments to the government’s suppliers. The ministry’s drive to collect cash may work again this month, says a central bank official monitoring the process, but it is not a sure bet. Neither is the proposition that Greece will manage to stay in the euro.