By , Bloomberg

In the halls of the IKA state-welfare center on a recent rainy day in the Athens suburb of Neos Kosmos, Katerina Dimas and her eight-year-old son had front-row seats in the drama of Greece’s cash crunch.

The 33-year-old hairdresser and her boy had spent three days trying to get her healthcare coverage renewed by IKA, which provides social security for 5.5 million Greeks and retirement benefits for 830,000 pensioners. The duo, who had arrived at the center at 6:00 a.m., were sitting in a corridor on a floor below where they needed to be because the crush of retirees and other people had left no room upstairs at the center run by Greece’s biggest pension fund.

“The way things are going in this country I don’t know if there’s any point even thinking about a pension,” Dimas said.


While Prime Minister Alexis Tsipras grapples with cash reserves that risk running out this month, concern is growing over how his seven-week-old government will find the money to pay about 1.5 billion euros ($1.59 billion) in monthly wages and pensions without a deal with European partners. Tsipras says there’s no chance Greeks won’t be paid, and also told creditors like the International Monetary Fund that they’ll be reimbursed.

The country began on Tuesday to debate measures to boost liquidity as it braces for more than 2 billion euros in debt payments Friday. A vote on the bill is set for Wednesday.

That’s even as Tsipras’s government is struggling to convince its main creditors — euro-area member states, the European Central Bank and the IMF — to release more money from its 240 billion-euro bailout program. European governments say they won’t disburse more emergency loans unless Athens implements a set of economic overhauls agreed last month, including pension and sales tax reform.

Fall Short

Even if a new deal goes through, it is bound to disappoint Greeks, said Wolfango Piccoli, managing director at Teneo Intelligence in London.

“The new package that Greece will be offered in June by its lenders is very likely to fall short of the expectations raised by Syriza, especially in relation to debt relief and leeway on the fiscal front,” he said. “It remains to be seen whether the prime minister will succeed in selling it to his own party.”

Scrambling for cash to pay the bills may be a new thing for Tsipras, who came to power promising to reverse some of the cuts to pensions and wages pledged in exchange for financial aid. It’s become a way of life for most Greeks, like Dimas.

Greece’s economy has shrunk by a quarter under the conditions laid down by Germany and other euro-area nations in bailout terms. The jobless rate increased in the fourth quarter as the economy began shrinking again and a political standoff rekindled concern the country could leave the euro area. The percentage of adults living in households where no one works rose to 19.6 percent in 2013 to 1.1 million, from 7.5 percent in 2008, according to the Hellenic Statistical Service.

Fighting Hard

Finance Minister Yanis Varoufakis and Tsipras have sparred with euro-area peers since an initial agreement on Feb. 24 to recalibrate the austerity that shrank the economy.

“Tsipras and Varoufakis heightened the rhetoric lately because quite honestly they didn’t get a lot from the last round,” Hans Humes, founder of Greylock Capital Management LLC, which owns Greek debt and equity, told Bloomberg TV on March 12. “Their popularity on the ground in Greece is soaring because of the stance they’re taking vis-à-vis Europe, so why not take a harder line and see what kind of concessions you can get.”

In the course of Greece’s five years of fiscal fisticuffs with its euro-area partners, cash management has focused on ensuring Greeks, pensioners included, get paid each month. That target was never missed even when political turmoil in 2011 and 2012 held up bailout payments for months at a time.

“There is no cause for concern,” Tsipras told reporters in Paris on March 12. “Even if in the next period of time there is no tranche paid, Greece will meet its obligations.”

Funds Hunt

The government needs to make principal payments of 4.6 billion euros between March and June and 1.9 billion euros of interest payments, Standard & Poor’s said on March 13, keeping its long-term rating on Greece at B-, and saying there were uncertainties around the country successfully tying up a funding agreement with creditors.

The lack of a clear funding plan is weighing on a nascent recovery of the economy and people paying their taxes, heightening the risk of Greeks salting away their deposits and increasing pressure on banks, the ratings company said. A 2.5 billion-euro tax revenue shortfall in the first two months is threatening the primary surplus Greece built up in 2013, a condition set by partners for further relief for its 324 billion euros of debt.

Coverage of short-term funding needs may mean the build-up of arrears with suppliers and tapping cash reserves of public institutions, S&P said. Drawdowns on the 10 billion euros of central government deposits in the banking system, including 3.4 billion euros at the central bank, are also possible, although a large deposit withdrawal could add to liquidity stresses at Greek banks, S&P said.

Frugality Reigns

While Tsipras promised Greeks an end to austerity, he has taken pains to underline that that didn’t mean an end to frugality.

In his first speech to his new cabinet on Jan. 28 he urged them to “avoid lavish expenditures.” He promised to cut staff at his official residence by 30 percent and his security detail by 40 percent. Varoufakis and Defense Minister Panos Kammenos travel economy class.

In the month after his election, before Tsipras and his finance minister struck a deal with creditors, the consumer confidence index rose to the highest in six years, according to IOBE — the Foundation for Economic and Industrial Research.

The euphoria has abated even as Tsipras and his government maintain solid support, according to an opinion poll by Public Issue published in Avghi newspaper on March 16 and conducted March 5 to March 11.

Sentiments of hope and optimism are now even with concern and anxiety at 26 percent, compared with 29 percent and 20 percent respectively a month earlier.

No Option

S&P said its base-case scenario is that Greece doesn’t leave the euro and that “the economic, social, and political ramifications” of an exit would be “severe”. An early sign of heightened exit risk from the euro area, it said, could include “capital controls and bank deposit withdrawal limits, as well as a cash-strapped government issuing IOUs to pay employees, pensioners, and suppliers.”

Those IOUs could over time lead to a national currency which could operate as sole legal tender in Greece after potential government legislation to redenominate its financial obligations where legally possible, it said.

In the same IKA corridor as Dimas and her son, Dimitris Harvelas, a former dockworker, shrugs off such concerns.

“I believe in this government,” said the 75-year-old who receives an 850-euro pension each month. “I believe we’ll continue to be paid. I voted for Syriza because the others disappointed me. We’ll get past this hurdle.”