As we said over the weekend, it’s all about Riga again for Greece. EU leaders will meet on Thursday and Friday in Latvia where PM Alexis Tsipras will try to secure a more favorable outcome than did FinMin Yanis Varoufakis who, last month in Riga, reportedly did more chiding and lecturing than negotiating, a performance that may ultimately cost him his job once all is said and done. The situation is far more urgent this time around, with Greece having tapped its IMF SDR account to make a payment to the Fund and with the banking sector running dangerously low on collateral that can be pledged for emergency liquidity.
A bit more color from Deutsche Bank:
One other factor that will likely add pressure to accelerate negotiations this week is the news over the weekend that Greece came close to being unable to pay the May 12th IMF repayment. According to Greek press Ekathimerini, PM Tsipras sent a letter on May 8th to the IMF’s Lagarde saying that the Greek government would not be able to repay the €750m unless the ECB allowed for Greece to issue more T-Bills. In the end, the government decided that it would only be able to repay after it emerged that Greece could use €650m of Special Drawing Rights issued by the IMF (and in turn exhaust their reserves). Since this, another memo sent by the IMF and reported by the UK’s Channel 4 on Saturday has suggested that Greece will be unable to make the IMF payment due June 5th unless a release of funds is achieved (this marks the next significant payment date).
More details have indeed emerged about Tsipras’ recent dealings with the IMF. As it turns out, Tsipras sent a letter to Christine Legarde early this month warning her that no payment would be forthcoming on May 12 without some manner of lifeline from EU creditors. Here’s more via FT:
Greece came so close to defaulting on last week’s €750m International Monetary Fund repayment that the prime minister warned IMF chief Christine Lagarde he could not pay it without EU aid.
Athens ultimately made the payment without financial assistance from the bloc but only by tapping a rarely used emergency account Greece holds at the fund — an unorthodox transaction that amounted to borrowing IMF funds to pay the IMF.
Varoufakis, Bloomberg reports, was tipped about the SDR option on a trip to Washington last month:
Greek Finance Minister Yanis Varoufakis had been told about possibility of using IMF SDR holding account on visit to Washington in April, govt still needed permission from IMF before could use it to make May 12 IMF payment, Greek govt spokesman Gabriel Sakellaridis tells reporters.
Meanwhile, Commerzbank doesn’t seem to buy the idea that the equivalent of a DIP loan would be sufficient to keep Greece from collapsing in the event Grexit becomes a reality:
Greece probably has no choice but to leave the euro if it defaults as it would likely be unable to source the funds needed to recapitalize its banks, Commerzbank chief economist Joerg Kraemer writes in client note.
As you can see, the bail-in hints are starting to be dropped, suggesting that in the final analysis, some Greeks may be Cyprus’d. Indeed, the IMF has already discussed this possibility behind closed doors. Here’s FT again:
According to two officials briefed on the talks, at least one board member raised the possibility of presenting a “take it or leave it proposal” to Greece…
The idea of a “Cyprus-like” presentation to Greek authorities has gained traction among some finance ministers, according to one official involved in the talks.
Touch Capital Markets’ Andreas Koutras summed up the situation nicely when he gave Bloomberg his best Schaeuble impression:
“There were too many people crying wolf before. But as Hemingway wrote: How did you go bankrupt? Two ways: Gradually, then suddenly.”
Full article: Shape Of Greek Endgame Emerges: IMF Discussed “Cyprus-Like” Plan After Tsipras Warned Of Looming Default (Zero Hedge)