When’s the Real Deadline?

July 20, most likely. That’s when Greece needs to pay about 3.5 billion euros ($3.9 billion) in bond redemptions for securities held by the European Central Bank. Greece needs short-term cash before then, or else an expanded lifeline from the ECB to its financial system.

That said, Greek banks have already been shut for more than a week because of their cash crunch. The ECB has mostly left intact its lifelines to Greek banks but on Monday it tightened conditions on emergency liquidity assistance. And on Tuesday it warned that offering too much flexibility to struggling lenders could weaken the incentive for others to follow the rules. That could be a reason to withdraw or reduce the support to Greece.

How Much Peril Are The Banks In?

A lot. Worst case scenario, they could all fail, taking household, corporate and public sector deposits with them. But that scenario is a long way off.

The ECB’s Governing Council has declared it will work closely with the Bank of Greece to maintain financial stability. Also, the ECB’s aid isn’t likely to be withdrawn abruptly.

David Fuller's view

So far, deadlines have lost any real meaning in the surreal world of EU crisis meetings. 

The one word which applies to everything in this tragic Greek drama is starvation and the list of victims continues to grow: Greek citizens are starved of cash; Greek export businesses are starved of imports needed to produce their products; Greece’s Treasury is starved of tax revenue; Greece’s government is starved of credible policies, and it is now starved of allies within the EU.

Meanwhile, European stock markets are starved of credible, decisive leadership from the EU in dealing with a small country which accounts for less than 2% of the region’s GDP.  This is further damaging confidence in the region, which earlier in the year was regarded as a recovery candidate, largely due to Mario Draghi’s success as President of the European Central Bank. 

Fortunately, Draghi is still there and his QE package of €60bn a month will once again be a welcome tonic for European stock markets, once investors sense that the uncertainty over Greece is nearly resolved. 

Stop Press: The EU’s latest deadline for Greece is Sunday or next Monday morning, depending on who you listen to.  Merkel says “no debt haircut” for Greece. Dutch PM Rutte Says: “We still hope for a miracle on Greece.”  No, I am not making this up; it comes straight from Bloomberg. 

(See also: Debt Relief Should Be Greece’s Parting Gift, by Mark Gilbert)