An interesting scenario regarding Greece’s future in the monetary union that has not been on the table so far was published today by Reuters. Citing unnamed Eurozone officials, the London-based news agency is saying that if a reforms-for-cash deal is not concluded between Greece and its creditors soon, then neither a Grexit or a Graxident would occur, as the solution will be given by introducing an alternative means of payment in parallel to the euro.
“At some point, when the government has no more euros to pay salaries or bills, it might start issuing IOUs, a paper saying that its holder would receive an X number of euros at a point in time in the future. Such IOUs would then quickly start trading in secondary circulation at a deep discount to the real euros and they would become a ‘currency,’ whatever its name would be, that would exist in parallel to the euro,” a senior Eurozone official was cited as saying.
Greece has lost its access to bond markets and it is not expected to return until its creditors see the reforms proposed by the government and agreed by them being implemented. Three days ago, another official told Reuters that without fresh funding, Athens might run out of liquidity in less than a month from today, by April 20. If the government runs out of funds to pay wages, pensions and suppliers, it would have to introduce capital controls to prevent a mass outflow of euros from the country, as happened in Cyprus in 2013 in order to prevent citizens from withdrawing their deposits, the report explained.
The IOUs, though, are likely to not be widely accepted in the real market and could be used as a way to settle only some government-related payments such as energy or water bills, at least initially. At the same time, the government would keep euros from tax revenue to cover debt repayments and avoid default. “The arrangement could be to temporary keep the government going as it hopes to negotiate a deal with creditors that would unlock more euros in loans,” a second Eurozone official told Reuters.
At the same time, an unnamed Greek official repeated the government’s official line, which says that sooner or later a deal will be completed with the institutions and funding will be restored. “The Greek government believes that there will be a deal at the Eurogroup and funding will be released after that, as agreed at the seven-party meeting,” the source is quoted as saying.
It should be noted that the Greek government is expecting that the reforms package will be approved by the creditors’ institutions which will signal the green light for the Eurogroup to proceed with the payment of both the 1.9 billion euros the European Central Bank (ECB) has raised from Greek bonds and the 1.2 billion euros requested by the Hellenic Financial Stability Fund (HFSF). Greek officials estimate that if those 3.1 billion euros are paid within the first 10 days of April, will provide the government with a deep breath, however everything will be decided in the next Eurogroup where the relevant political decisions will be taken.