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Will Greece Call A Referendum On Euro Membership?

The rumor mill was alive Friday morning with reports that the resignation of Greek FinMin Yanis Varoufakis was imminent. Unsurprisingly, the Greek government is out calling the reports “unfounded”: 

Via Bloomberg: 

  • Speculation a long way from reality: Sakellaridis

Although we don’t know exactly what that means, what we do know is that Bundesbank chief Jens Weidmann isn’t buying what the Greek government is selling, isn’t enthusiastic about perpetuating the charade by allowing for more room under the ELA cap, and suggested that a “disorderly insolvency” may be a foregone conclusion. Here’s more (again, via Bloomberg): 

Weidmann ‘doesn’t buy’ argument Greek debt insurmountable.

 

Bundesbank President Jens Weidmann says he’s against expanding emergency liquidity for Greece, Focus magazine reported, citing an intv. 

 

“When a member country of a currency union decides not to meet its obligations and stops payment to creditors, then a disorderly insolvency can’t be avoided”

 

New Greek government has “squandered a lot of trust”

 

There’s “not much time left” to reach solution on Greece

 

“Greek interest burden relative to economic performance in the current year is lower than Italy, Portugal or Ireland”

Meanwhile, the Germans note that they have no idea what Syriza is likely to come up with: 

German govt doesn’t have any information about expected Greek proposals for economic reforms, Finance Ministry spokeswoman Marianne Kothe tells reporters in Berlin.

 

Impact of Greek proposals will have to be “quantifiable,” in line with euro-area agreements: Kothe.

And it now appears as though the reforms list is indeed ready for review:

  • GREEK REFORMS LIST IS READY, GOVT OFFICIAL SAYS
  • GREEK DELEGATION FLIES TO BRUSSELS TODAY: GOVT OFFICIAL

So that’s where the situation stands. For their part, UBS isn’t optimistic. “The negotiations between the Greek government and its international partners on the long-stalled Troika review have not progressed well,” the bank notes dryly. UBS goes on to discuss why April is likely to be the toughest month yet for Athens as the government races to find a solution ahead of looming debt payments in July. Here’s more: 

Although the government has pledged to present a reform list early next week, we expect negotiations to remain protracted, and given substantial debt service in the coming weeks, we think market sentiment might turn a lot more nervous again in April. This could also trigger further deposit outflows from the Greek banking sector, which is heavily reliant on the Eurosystem's Emergency Liquidity Assistance (ELA)...

 

The government's budget position looks increasingly stretched, and sharply lower tax revenues have triggered a steep year-on-year decline in Greece's primary surplus. This has forced the government to resort to increasingly desperate measures to fend off cash shortages...

 

Given the complicated nature of Greece's fiscal situation and the highly controversial discussions around structural reforms, we would not rule out the list falling short of the Troika's demands and the negotiations proceeding only very slowly. And to keep the pressure on the Syriza government, Greece's European partners are unlikely to grant quick financial relief…

 

Here’s what the government is up against in terms of financial obligations in the coming days:

At the end of March it will have to mobilize an estimated €1.7bn for salary and pension payments. On 9 April, it faces IMF repayments of SDR360.45m/€457.8m. On 14 and 17 April, respectively, it must roll over T-bills worth €1.4bn and €1.0bn. Most of these are held by Greek banks, but a proportion is reportedly owned by foreign investors, who might not want to stay involved in the T-bill trade; this could make the rolling-over more difficult.

The cash situation does not look good: 

And neither does the timing of repayment obligations: 

In the end, UBS suggests that the government might well put the whole thing to a popular vote and should Greeks opt to remain in the currency bloc, Syriza could use that as leverage when it comes to securing popular support (or at least acquiescence) for tougher economic reforms: 

One of the potential options Syriza might eventually consider could be a popular referendum on Eurozone membership – a step that would obviously involve great risks and uncertainties. But if, presumably, a majority of Greek voters were to endorse Greece's ongoing membership in the monetary union, Syriza could then argue that this will require the government to make unpopular concessions to the "institutions". If this scenario were to materialize, we believe a referendum might be called in late April or early May, once the end-April deadline nears or expires.