Greece Could Run Out of Cash in Weeks. Eurozone ‘NO’ on issuing Greek T-bills

euro_billsOfficials in Athens and other European capitals are frantically searching for ways to keep Greece from running out of money next month, after initial plans to finance the cash-strapped country fell flat with its creditors.

At a meeting of senior eurozone finance-ministry officials on Thursday, Greece asked for permission to raise an extra EUR4.5 billion ($5 billion) in short-term debt–a demand that was immediately rejected by the European Central Bank, four European officials said. That money could have helped tide over the government for the next four to six months, the time it believes is necessary to negotiate a new aid program, two officials said.

Diminishing tax revenues in the run-up to January elections have pushed Greece’s finances to a precarious point. Greek officials now fear that the government, led by the anti-austerity Syriza party, could run out of cash as soon as early March.

That situation has been exacerbated by the ECB’s decision to no longer accept Greek governments bonds as collateral from banks seeking funds. Greek lenders will instead have to rely on emergency funding from their own central bank, which is more expensive and can also be cut off by the ECB.

“We are under a lot of time pressure,” said one European official involved in the negotiations on Greece.

Apart from financing its normal operations, the government in Athens faces several big debt repayments in the coming months. Among these are some EUR4 billion in transfers to the International Monetary Fund in the spring and about EUR7 billion in payments to the ECB.

At Thursday’s talks, officials asked Greece to come up with a specific funding plan by next Wednesday, when eurozone finance ministers have called a special meeting to discuss the country’s financial situation.

The group’s chairman, Austrian Thomas Wieser, will also prepare a document describing different scenarios, one official said. No specific amounts for a new bailout have been discussed so far, given uncertainty over Greece’s financial needs until the end of the year and beyond, the official said.

Until that has been determined, Greece’s creditors see no way around extending the country’s existing EUR240 billion rescue program beyond the end of February–a step that the government of Prime Minister Alexis Tsipras has so far refused to take.

“Extension is the only thing on the table right now,” a second official said. The current bailout was negotiated in 2012 by Mr. Tsipras’s predecessor and requires unpopular measures, including a further overhaul of the pension system and public-sector cuts.

There may be some leeway for the new government to substitute unpopular measures with more palatable ones and Greek plans for fighting tax avoidance and making the public sector more efficient were well received at Thursday’s meeting, one of the officials said. But, the official stressed “the final outcome has to be credible.”

Syriza’s other main campaign pledge–to reduce Greece’s huge debt pile–may have to wait even longer. “Any discussion on debt is not for now,” said a European Union official. “At a later stage, once a clear framework for future support for Greece is agreed, it is possible that the creditors could look at measures to further enhance Greece’s debt sustainability.”

Officials have said that the eurozone may be willing to lower interest rates on money it has already lent Greece and give it more time to repay them. However, they have ruled out cuts to the principal of the debt, which stood at EUR315 billion at the end of the third quarter.

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