Greece liquidity reserves unclear ahead of IMF payment

Greece faces a tense 24-hour standoff with two of its major international creditors this week as Eurozone Finance Ministers prepare to meet in Brussels and speculation mounts as to whether the cash-strapped country will be able to meet a €750 million payment to the International Monetary Fund, sources have told MNI.

As investors focus on the negotiations between Greece and its creditors and the wording of any statement from the latest round of face-to-face talks in the Belgian capital, the real “thriller”, according to one source, revolves around Greece’s cash reserves. Prime Minister Alexis Tsipras has, since Thursday, been coordinating communications between Athens and its creditors in order to find a solution to the rapidly deteriorating situation. And while it is possible that the IMF cash will be found “at the last minute” for repayment Tuesday, some are bracing for the worst.

“No one wants a default by accident,” a well-placed EU source told MNI. “But the IMF has refused to grant Greece an extension and delay the payment.”

Greece has used pending debt payments as leverage in its negotiations with creditors in the past, the sources explained, but on this occasion it appears as though EU officials understand the severity of the country’s cash position.

“The situation has been blurry as to whether Athens has the funds … to either pay the IMF on May 12 or (government) salaries and pension obligations at the end of the month,” the Senior Eurosystem source explained. But on Wednesday, the source went on to say, after further explanations given by Tsipras as well as indications by the central bank of Greece that the special account held for paying state obligations did not have the necessary funds yet, the EU became increasingly worried.

The potential cash crisis comes amid a increasing series of leaks from both the Greek government and EU officials that indicate progress is being made and that negotiations, now partly in the hands of Deputy Foreign Minister Euclid Tsakalotos, have taken on a more positive tone in the absence of combative Finance Minister Yiannis Varoufakis, who will still represent Greece at Monday’s Eurogroup.

However, while the EU source insisted that “paying the IMF on Tuesday has nothing to do with the progress of the negotiations” a Greek government official said Sunday that “we would like to see a Eurogroup statement so we can go ahead with the IMF payment.”

“The money could be there, it could be not. We will see on Tuesday,” said the official after the governmental meeting. He did not elaborate whether Greece has managed to gather the amount and is making it a political decision to repay the IMF based on the outcome of the Eurogroup meeting, or whether the amount has still not been raised.

He insisted though that the Eurogroup could pave the way for the ECB to loosen its policy on Greece Wednesday.

EU officials played down the IMF deadline during a regular briefing with journalists Friday in Brussels, insisting that Athens is expected to “easily” cover its upcoming obligations.

However, MNI sources have said the EU has been quietly trying to resolve the liquidity issue and has been leaking positive notes in order to avoid increasing market speculation and de-stabilizing the country’s fragile banking sector, which, according to a report in the country’s ‘I Efimerida ton Sintakton” newspaper citing a Bank of Greece email, has lost E35 billion in deposits since Syriza came to power in late January.

“There has been constant communication between officials to avoid an accident. Several scenarios have been put on the table,” one EU source said.

“Experience elsewhere in the world has shown that a country can suddenly become unable to pay its bills,” Germany’s Finance Minister warned in an interview published this weekend in the Frankfurter Allgemeine Sonntagszeitung newspaper, adding the Germany would do what it takes to keep Greece in the Eurozone “under responsible conditions.”

Multiple sources told MNI last week that European Commission President Jean-Claude Juncker will push for a deal by the end of the month in order to avoid Athens losing pending loan tranches, although the same sources indicated a deal is still quite far off and obstacles on key issues remain.

On the other hand, the sources have said, the so called hardliners within the EU and the IMF are preparing a complete package for Greece and will present it to Athens at the end of May if the negotiations are not concluded successfully by then.

Tsipras, meanwhile, has been putting a brave face at home as he seeks to quell any political concern that his Syriza party is losing its grip on the negotiations, assuring lawmakers in Parliament Friday that Greece will meet it financial commitments to both its creditors and its citizens.

“I am sure that they all understand that democracy must be protected within the EU,” Tsipras said. “Europe cannot sustain less democracy. If a crime is committed at the country which gave birth to democracy, then no one will silence this crime.”


Option expiries for today’s NY cut 1000ET

* EUR/USD: 1.1000 (EUR 1.8bn), 1.1050 (EUR 1.7bn), 1.1100 (EUR 1.7bn), 1.1150 (EUR 1.0bn),
1.1200 (EUR 1.73bn)
* USD/JPY: 119.50 (USD 394mn), 120.00 (USD 2.14bn), 120.50 (USD 510mn), 121.00 (USD 1.73bn)
* EUR/JPY: 132.00 (EUR 462mn)
* GBP/USD: 1.5400 (GBP 236mn)
* EUR/GBP: 0.7270 (EUR 212mn)
* AUD/USD: 0.7800 (AUD 2.7bn)
* NZD/USD: 0.7525-30 (NZD 1.0bn)

(Source DTCC)

Greek documents baffle Eurozone officials

Documents containing overhaul plans and growth estimates distributed by Greek Finance Minister Yanis Varoufakis to some of his eurozone counterparts have baffled officials involved in the talks between Greece and its international creditors.

Officials say that the files differ greatly from what has been discussed in technical talks in Brussels in recent days and underline how Mr. Varoufakis continues to complicate progress toward a financing deal.

The 36-page document, entitled “Greece’s recovery: A blueprint” and seen by The Wall Street Journal, was presented by Mr. Varoufakis to his counterparts in Paris and Rome, as well as senior officials in Brussels while touring European capitals over the last week, according to four European officials.

Spokespeople for Mr. Varoufakis and the Greek government couldn’t immediately be reached for comment.

Greece’s leftist-led government is currently locked in negotiations with its international creditors–the International Monetary Fund, the European Central Bank and the European Commission–over its next slice of financial aid as part of a EUR245 billion rescue package.

Disagreements over cuts to Greece’s pension system and changes to its labor market that make it easier to dismiss workers have held up a deal on further bailout aid between Athens and its creditors. While talks between technical experts from Greece and the institutions overseeing its bailout, which resumed last week, have become more constructive, differences on thorny areas remain wide, European officials say.

The contents of the paper focus on the future of the Greek economy, and how it can return to growth. “Perhaps it is time to visualize a recovering Greece before we unlock the present impasse,” the document says, before going into the various areas where the country plans to reform.

While some of the reforms the document outlines are the same ones agreed in the continuing negotiations–such as the creation of a fully independent tax commissioner–the paper also differs in several areas from what is currently being discussed between technical experts representing Greece and the institutions overseeing its bailout.

“There is hardly any connection between his blueprint and the ongoing ‘negotiations’,” an EU official said. “It seems like a fine program for a country that does not have any financing problems, but just wants to catch up and be a nice tourist destination,” he added.

An area where officials identify as significantly different to what is currently discussed between experts from both sides is the creation of a “bad bank”–an entity that would house and wind down Greek lenders’ bad loans. “Conveniently, the financing of the bad bank is not treated–he said he would send us the cheque” the official said.

Mr. Varoufakis’s document also predicts Greece’s economy will grow just 0.1% this year, below the 0.5% forecast this week by the European Commission. In the talks in Brussels, Greek officials have been pushing for a higher growth estimate than the one published by the commission. For 2016, Mr. Varoufakis’s files expect 2% growth, also below the 2.9% forecast by the commission.

“The problem is that Varoufakis doesn’t seem totally in line with Tsipras,” another official said, adding that it isn’t clear to what extent the files represent the government’s position. This has caused confusion in the talks, officials say.

Some officials, however, played down the significance of Mr. Varoufakis’s intervention and point to a reshuffle of Greece’s negotiating team early last week in which the finance minister’s influence was reduced. As long as that remains the case, they say, his paper doesn’t bear much significance.

Still, the confusion is likely to further impede progress in negotiations, which officials say has been sluggish in recent days, keeping the cash-strapped country from accessing desperately-needed aid for a while longer.

Greece has been draining cash reserves in recent months to meet domestic obligations, the payment of civil servant’s salaries and pensions, while also meeting debt repayments.

The country’s next big hurdle is a EUR750 million loan repayment to the IMF due May 12, having made a smaller payment this week. While Greek and EU officials have expressed concerns about whether the country can make the payment, Mr. Varoufakis, speaking at a business conference in Brussels on May 7, suggested such concerns were unfounded. “We certainly intend to pay the IMF,” he said.

USD price action: A deja vu – Goldman Sachs

The dovish FOMC surprise this March is casting a shadow over the Dollar, similar to a year ago. The last time the FOMC damaged conviction, when a “hawkish” dot plot in March 2014 was followed by “dovish” minutes in April. At the time, the Dollar fully unwound what were the makings of a rally and remained in the doldrums until mid-2014.”

“In the aftermath of a dovish Fed surprise, are we cruising for a repeat? We think not. After all, the unemployment rate is a lot lower now and there is a reasonable chance it could approach the Fed’s NAIRU estimate (5.1%) at some point over the summer. Friday’s payrolls report is especially interesting in that regard, because our expectation for solid jobs growth (230k) could come with sizeable back-revisions: on average since 2010, the average 2-month revision in April is 74K, with the smallest being 36K.”


Risk-Reward Into NFP:

With lift-off approaching and market pricing at the dovish end of the spectrum, we think this is a good time tactically to re-establish Dollar longs. Ahead of Friday, our favorite expression of Dollar strength is versus the Euro and then the Yen.

EUR/USD, USD/JPY Forecasts:

We continue to have high conviction in EUR/USD downside (our 12-month forecast remains 0.95) and USD/JPY upside (a 12-month forecast of 130).