MacroPolis

In mid-November, when Greece’s exit from recession was confirmed, Prime Minister Antonis Samaras declared: “Greece is back.” It was not the first time the Greek premier argued that the country had overcome the worst of its problems. Similar declarations came with Greece’s return to bond markets earlier in the year, when the 2013 primary surplus was confirmed and when the troika review was concluded in April 2013, spawning the “success story” narrative.

Just two months after the “Greece is back” comment, the same prime minister is arguing that his country “is very close to take-off but very close to sinking again.” The fragility of Greece’s recovery and the wishful thinking displayed by many in the country and abroad who heralded the end of the crisis has been laid bare over the last few days.

The alarm bells have started to ring as it becomes clearer by the day that the next government will inherit a precarious situation. Finance Minister Gikas Hardouvelis gave the starkest warning yet in an interview with the Financial Times on Thursday that Greece is at risk of running out of money in March.

Hardouvelis’s words of caution are aimed at SYRIZA, which looks set to win next Sunday’s elections. Some will see his comments as a political intervention but Hardouvelis has a strong case in arguing that it is in the public interest for these issues to be aired before Greeks go to vote. At the same time, though, it shifts the responsibility away from those who have governed for the last 2.5 years and who repeatedly assured voters that they had taken difficult choices in order to guide Greece to calm waters. They have not succeeded in putting the country beyond danger.

The truth is that, whether by (bad) luck or design, Greece goes into these elections dreadfully exposed. Apart from the fact that Greece’s cash reserves will not last beyond March, there is a whole array of other worrying factors that need to be taken into account.

Pending instalment

The failure to conclude the troika review that began in September has led to Greece not getting the total of 7.2 billion euros (3.6 from IMF, 1.8 from EFSF and 1.8 from SMP) it was in line to receive. The government has attempted to blame its inability to reach an agreement with troika inspectors on the political uncertainty caused by SYRIZA. There is little doubt that as time passed the intention of SYRIZA and other opposition parties to trigger snap elections over the presidential vote due in February 2015 made negotiations with the troika more fraught. But this certainly cannot be given as the main reason for the talks being inconclusive. When Greek officials met with troika representatives in Paris at the beginning of September, the government assured everyone that the matter would be wrapped up within a few weeks. Political uncertainty did not become a factor until much later in the process, by which time the government could have concluded the review if it had been committed to doing so.

No credit line

Apart from not securing the 7.2 billion euros, which impacts on everything from the state’s cash reserves to banks’ liquidity, the government also fell way short of completing its plan for exiting the bailout and moving towards a precautionary credit line. Instead, it agreed a two-month extension to the bailout, which will expire less than four weeks after a new government is sworn in (if the January 25 elections produce one). This gives the next prime minister hardly any time in which to negotiate with Greece’s lenders. Runaway yields also mean that the possibility of tapping bond markets is a non-starter. In fact, it gives whoever takes over just a few days in which to secure some kind of agreement to ensure that the eurozone does not ask for the return of the 11.5 billion euros remaining in Greece’s bank recapitalisation fund, the HFSF, which was due to be used to fund the precautionary credit line.

T-Bills maxed out

At the same time, as the Finance Ministry reminded everyone this week, the option of turning to T-Bill issues to cover short-term funding needs is not currently available as the government has reached the limit of 15 billion euros it agreed with the troika. Although the limit was raised during exceptional circumstances in 2012, this is one more issue that needs to be added to the many outstanding items the new government will have to discuss with the troika as soon as it takes over.

Repos near limit

The scope for turning to another short-term funding tool, which is the use of cash reserves at general government bodies (repos), is also severely limited. By the end of November, the current government had used up 7 billion euros in repos, leaving room for only 2 to 3 billion more, according to reports.

Revenues sinking

Meanwhile, tax revenues plummeted by 17.7 percent in December and fell 3.2 billion euros short of their 52.8-billion-euro target for 2014. This left Greece’s primary surplus for the year 3 billion euros short of the target, meaning the new government will need to conjure up an immediate fiscal recovery.

Deposit outflow

The inability to settle Greece’s relations with the troika along with the climate of political uncertainty have also had an impact on deposits, with some 3 billion euros flowing out of Greek banks in December and the outflows continuing this month. With liquidity problems looming, Greek banks are turning to Emergency Liquidity Assistance (ELA) as a precautionary move. While local lenders are in much better shape than they were when the last elections took place in 2012 and there is no cause for panic at this stage, there is a sense of anxiety that need not have been there.

A series of malignant factors have aligned ahead of next Sunday’s elections. Their combined potential to create grave problems should not be underestimated. If anyone with aspirations of governing is unaware or dismissive of the difficulties ahead they really should quit now. While these looming threats burden the current government, whoever takes over must carry the weight of nullifying them. They will, justifiably, complain about the hand they have been dealt but they must remember that they asked for a seat at the table.

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