Given the chaotic political and economic environment that reigns in Greece after last Sunday's election, a disorderly bankruptcy in Athens becomes more likely with every passing day.
Incidentally, on 15 May a foreign law bond of €450 million expires and it is not clear if Athens will pay it or not. The caretaker Minister of Finance, Philippos Sahinides, said he cannot take the decision to pay it or not alone and he has asked the political party leaders of the new Parliament to decide on that, but nobody seems to care.
In any case the troika of EU-ECB-IMF, which is the only life line of soft loans to Athens, is about to released the first tranche from the second loan package in favour of Greece. However the board of the European Financial Stability Facility said that they are not going to release the full May tranche of €5.2 billion but only €4.2 billion, to cover just the expiring old debts. This means not one euro will be used to finance the current expenses of the Greek government. As for the June loan tranche, the troika has clarified that it will be released only if Greece is complying with the agreement the Papademos government signed some weeks ago.
According to the agreement, Athens has to produce more salary and pension cuts, and lay-offs of personnel in the public sector. It will be very difficult however for any Greek government to apply the terms of the new Memorandum of Understanding the country agreed with the troika at the beginning of March. The political scenery in Athens is now so fragmented that there is scarcely any leader who can undertake the task of sitting in a table and face the official lenders of the country.
In view of all that, a disorderly bankruptcy is becoming every day more probable. May 2012 however is not December of 2011, when the Eurozone had difficulties even thinking about Greece going bust. Today the EFSF/ESM mechanisms are there with an overall financial fire-power of around €700 billion plus the new IMF instrument in favour of Europe of about €200 billion. All Eurozone member states, the Brussels Commission, the Frankfurt based ECB and the IMF have also been preparing over the past months for such a possibility.
The clear cut ultimatum that the Eurozone and the IMF dignitaries issued to Greece after the Sunday election, that there won’t be any more loans if Athens does not comply with the terms, is a strong indication that Europe will not be paralysed by the idea of a Greek bankruptcy. On top of this, markets and private investors are not any more too exposed to the Greek debt, especially after the realisation of the Private Sector Involvement exercise at the beginning of March, under which the privately held Greek debt had a deep haircut of at least 53.5%.
Now the largest part of the Greek debt is widely spread between the ECB and the Eurozone governments and none of them want to risk suffocation after a disorderly Greek bankruptcy.
In short the message from Europe and the IMF to Athens is clear: you have to comply with the terms of the MoU otherwise you are on your own. Still however, there are voices of conciliation mainly coming from Rome saying that an exit of Greece from the Eurozone will be a catastrophe and others will follow if Athens opens the door. Madrid and Lisbon also appear terrified over the idea of a Greek bankruptcy and Mariano Rajoy and Pedro Passos Coelho said they hope Greece will remain in the Eurozone.