There is still no deal between Greece's radical left government and the country's international creditors, after four months of brinkmanship on both sides.
Yet, despite a slew of looming deadlines for loan repayments that will be difficult to meet, a glimmer of hope for Greece remains.
Europe would not completely cut off the country even in the case of a debt default, Handelsblatt has learned.
The European Central Bank and the European Union's bailout fund would not abandon Athens, even if it fails to make its next repayment to the International Monetary Fund in early June, according to E.U. diplomats who declined to be identified for this story.
The central bank is preparing to continue providing Greek banks with emergency loans, sources close to the Frankfurt-based bank said.
The big Greek banks have other securities aside from Greek sovereign bonds that they could provide as collateral.
The continued life-support in the case of a Greek technical bankruptcy, if confirmed, suggests that Europe may be prepared to carry the troubled country in its receivership, easing the financial burden on its residents.
At the same time, the plan suggests that the ECB and Greece's other lenders may be making concrete plans for its bankruptcy. Greece and its lenders are still negotiating on terms for a new bailout to prevent the country from leaving the euro.
Continued assistance to Greece, even after the country stopped paying on its debts, could come in the form of so-called Emergency Loan Assistance, or ELA, for Greek banks.
The ECB's governing council would have to renew its ELA program for Greece. It is unlikely, however that the central bank would immediately pull the plug and push the Greek banking system into chaos, E.U. diplomats told Handelsblatt.
The current ELA limit has been set at €80 billion, or $91 billion, with the ECB governing council raising the cap incrementally on an almost week-by-week basis in recent months.
According to the current relatively generous rules, Greek financial institutions hold securities that would cover a maximum of around €95 billion of ELA loans, financial sources said. If Greece were to default on the IMF loans, then the ECB could increase the discount that Greek banks have to take on the securities. That would then reduce the ELA limit to around €88 billion.
We are now at the final stretch before striking a mutually beneficial agreement after long and painful negotiations. Alexis Tsipras, Greek Prime Minister
The European Union’s rescue fund that covers Greece, the European Financial Stability Facility, is also unlikely to pull the plug on Greece even in the case of a “credit event.”
Theoretically, the EFSF has two possible options: It can demand that Greece immediately pay back the billions of outstanding loans; or it can communicate in writing that it retains the right to demand repayment at a later date. Brussels assumes the EFSF governing council, made up of the euro-zone’s finance ministers, would choose the latter option.
As a result, the ongoing negotiations between Greece and its international creditors over economic reforms and the release of the remaining bailout funds could continue, in principle, even after a debt default.
The next big repayment to the IMF, of €298 million, is due on June 5. In total, Greece faces five IMF payments amounting to €1.973 billion between June 5 and July 13. However, the country’s current bailout program is due to expire at the end of June.
Since 2010, the IMF, ECB and European Union have provided Greece with €240 billion in loans, in exchange for tough austerity measures. The election of the radical-left Syriza government in January, which had vowed to end that austerity, has led to a stalemate between the lenders and the Greek government.
Athens is balking at signing up to the reforms, such as pension cuts and labor market deregulation, which creditors say the country needs to implement to make its economy sustainable. Since Syriza's victory, the country’s economy has contracted amid uncertainty about whether it will default and possibly be forced out of the euro zone.
With a deal still elusive, many worry that Greece may not be able to hang on much longer. As the government continues to drag its heels on the tough reforms demanded by the euro-zone ministers and the IMF, it could suffer an “accidental” bankruptcy.
German finance minister, Wolfgang Schäuble, has warned that countries can suddenly go broke, and the German central bank, the Bundesbank on Monday published a its monthly report with the title “A Greek default is an acute threat.” It added the situation is “still worrying.”
Meanwhile, the European Commission president, Jean-Claude Juncker, has denied a Greek media report from Monday claiming he had a separate compromise deal that would have been more lenient on Greece. “There is no Juncker plan,” he said in Strasbourg on Tuesday.
And he also sought to dampen Greek hopes that the bailout funds might be released later this week following an E.U. summit in Riga on Thursday. He said that "the end of May, start of June" was a more realistic date.
In Athens, the government is trying to reassure Greeks that a deal is imminent.
"I think we are very close,” Greek Finance Minister Yanis Varoufakis said on Monday, adding that he saw a deal being reached in “let's say about a week.”
Speaking on Greek private broadcaster, Star TV, Mr. Varoufakis said, however, that he would reject any deal his government considered "non-viable."
Earlier in the day, Prime Minister Alexis Tsipras told Greek business leaders that an agreement would come “very soon," adding: “We are now at the final stretch before striking a mutually beneficial agreement after long and painful negotiations.”
But the minster also warned that Greece was in a state of "financial strangulation."
Mr. Tsipras is coming under increased pressure from the more radical elements within his own Syriza party, an umbrella group of different left-wing organizations.
On Tuesday night, prominent hardline members of the party plan to hold a rally to oppose any compromise that involves a “neoliberal strategy.” In the leaflet for the event, they called for a “rupture with the lenders” and announced “the moment of truth has arrived.”
Ruth Berschens is Handelsblatt's bureau chief in Brussels. Jan Hildebrand leads the paper's financial policy coverage. Siobhán Dowling is an editor with Handelsblatt Global Edition in Berlin. To contact the authors: [email protected], [email protected], [email protected].