Default is coming. So is Grexit. Bloomberg’s take:
How long can Greece carry on? With revenues just about covering the pay and pensions bill, there’s not much left over to make even the small(ish) payments due to the IMF in June. If Greece and its banking sector can limp a little further, the state should get a boost from income tax receipts that usually flow in July. Unfortunately, that might come too late to pay the ECB 3.5 billion euros due on July 20, and the repayment that follows in August looks like an impossible challenge without a disbursement of Eurogroup funds.
Should Greece’s citizens begin to lose faith in a positive outcome to negotiations, it’s quite possible that receipts could falter as more of the usual tax payments are held back and taxable activity is curtailed. Still, some boost to the Treasury’s bank balance is likely in July. General government revenues could be lifted by about 3.8 billion euros compared with the average for the other months of the year. That would get some way towards the figure needed to pay the ECB, though it might not come soon enough to avoid a missed payment.
Of course, making it as far as July depends on how long the Greek banking sector can survive. Absent a change to the haircut imposed by the ECB on Greek banks’ collateral, limitations on emergency liquidity assistance are unlikely to pose serious constraints before mid-July. Greek banks have enough collateral to access 93 billion euros in liquidity. That’s 13 billion euros above the current cap. The four-week average of increases by the ECB stands at 1.5 billion. At the current pace of increase, Greek banks could keep borrowing more for about eight weeks to offset deposit flight.
The usual suspects will insist that this is irrelevant because the USA has the ability to “print” its own currency, but again, the limit has nothing to do with printing and everything to do with finding someone willing to either borrow or loan the credit money. Furthermore, the Greek public is obviously quite willing to borrow, whereas the American public is not.
But this superficial assessment omits the fact that all the “Greek bailout” money went to the Greek banks, and deposits are loans to the banks. The negative interest rates beginning to appear around the world mean that the various publics are increasingly unwilling to loan their money to the banks, which is why the various proposals for banning cash and other means of preventing individuals to keep stores of value money outside the ever-widening maw of the banking system are being floated.
It’s a complicated subject and no one understands it completely, to the best of my knowledge. But rest assured that any solution that does not involve most of the banks writing off bad loans and then going out of business will be a failure.