Assuming that this is just a game of chicken, time is not on Greece's side. Greek finances would dry up within a month of the end of the current agreement... But things are not much rosier for the Eurogroup.
As yet another round of Greek/Troika negotiations end in deadlock, all eyes turn to today's meeting of the European Central Bank's governing council. The council will be meeting in Frankfurt today ahead of its next formal meeting on March 5th, the week after the termination of the current Greek bailout.
One option up for discussion at today's meeting will be whether or not to raise the Bank of Greece's emergency liquidity allowance to Greek banks. Currently, the ELA is capped at 65 billion euros, but last week's numbers indicate that the Greek banking sector is already brushing up against that cap, with total ELA usage in the neighborhood of 57.5 billion euros. Analysts are now speculating that a decision not to raise the cap may be another signal from the ECB to Greece that they are not going to be the first to swerve in this high-stakes game of chicken.
The emergency liquidity is necessary because Greek banks are now bleeding deposits as depositors prepare for a breakdown in talks and the possibility of a Greek exit from the Eurozone. Shades of the infamous Cyprus bail-in are hanging over the Greek banking sector as new figures indicate a net withdrawal of 15 billion euros from Greek banks in the first six weeks of 2015, bringing total deposits to 145 billion euros from the 160 billion euros that were on deposit at the end of 2014. This is causing increasing liquidity shortages, even for solvent lenders, and the ELA is now the lifeline that is keeping the system from crashing down. If a new Greek bailout agreement is not sealed by the end of the month, the ELA would like be shut down.
The negotiations have now entered an endgame scenario, with Eurozone finance ministers indicating yesterday that until the Greek government requests a bailout extension there will be no new talks between the parties. Assuming that this is just a game of chicken, time is not on Greece's side. Greek finances would dry up within a month of the end of the current agreement and Greece's stock market losing another 1% on the news of the negotiation breakdown. But things are not much rosier for the Eurogroup; the euro is back up slightly at $1.1429 but still down considerably against the dollar since the current crisis began.
Greece has been offered a total of 240 billion euros across two bailouts with the stipulation that these funds would only be provided in return for economic reforms and budget cuts by Athens. Further aid programs would be negotiable under the terms of the deal with the IMF/ECB/European Commission troika. Greece has rejected the latest offer, however, after Eurogroup Chairman Jeroen Dijsselbloem altered the terms of a tentative agreement made with Prime Minister Alexis Tsipras last week. The government now insists it would be “absurd” for them to abide by bailout conditions specifically rejected by Greek voters.
Dijsselbloem says that a deal must be in place by the end of the week in order to create a financial backstop in time for the end of the deal on February 28th. While Michael Schroeder of the ZEW institute insists that the general opinion on a possible Grexit is “relaxed,” he does admit that “we actually don’t know what could happen.” But the understatement of the year has to go to U.K. Chancellor George Osborne, who remarked on Tuesday: “The consequence of not having an agreement would be very severe for economic and financial stability.”
And as the freight trains of Greece and the Troika prepare to collide, Greek citizens scramble to protect their deposits from the inevitable fallout. At least they won't have long to wait to find out what will happen.