Greek default: Is it a question of ‘when’ not ‘if’?

By Holly Ellyatt, CNBC

Although Greece is to make a multimillion-euro debt repayment due to the International Monetary Fund (IMF) Thursday, there are fears that as the country drowns in debt and repayments, default could be just a matter of time.

A Greek government official confirmed to news wires Thursday that the country it had paid back some 450 million euros ($484.5 million) to the IMF.

To help pay its way, the country sold over a billion euros worth of six-month treasury bills Wednesday, albeit at a yield of 2.97 percent. The auction was one of two short-term bond sales taking place this month to roll over the maturity of six-month bills on April 14 and April 17, but the country faces bigger debt repayments in the coming weeks.

In early May, 1.4 billion euros worth of T-bills mature, it has another 779 million euro debt repayment due to the IMF on May 12 and later on July 20, it has to pay 3.5 billion euros to the European Central Bank (ECB) when a Greek bond held by the central bank holds matures.

With its mounting debt burden, Greece would soon default, one economist warned.

“In my own view, Greece is going to default almost certainly – the only issue is when — and I think a large portion of the markets agree with that position,” Mark Melatos, senior lecturer at the School of Economics, University of Sydney, told CNBC Thursday.

“It’s not going to assist with the immediate problem that Greece has some pretty large bills coming due that need to be repaid.”

Greece has been the recipient of two international bailouts since 2010 worth a combined 240 billion euros. In February, its second bailout program was extended by the IMF, European Commission and ECB by four months to give it more time to make drastic reforms in return for a final tranche of aid. Those reforms are yet to be finalised, however, and the aid worth 7.9 billion euros remains under lock and key.

Against this backdrop, Greece has one of the highest debt burdens in the world – some 175 percent of its gross domestic product — and the highest unemployment rate in Europe, with 26 percent of adults without a job.

There is hope that a meeting of the Eurogroup of finance ministers on April 24 might yield some progress over the country’s bailout program as the June deadline for its completion nears but, in the meantime, Greece has looked elsewhere for support.

Greece’s Prime Minister Alexis Tsipras started a two-day visit to Russia Wednesday to meet with President Vladimir Putin, a visit that prompted rumors that Greece could ask Russia for financial aid, despite the controversy that would cause in Europe which has imposed sanctions on Russia for its annexation of Crimea and role in the conflict in Ukraine.

Following the first day of meetings between the leaders, a more pragmatic offer of a deal tied to energy cooperation seemed to appear. A Greek government official told Reuters Wednesday that Russia was considering giving Greece funds based on future profits that the country would earn from shipping Russian gas to Europe as part of an extension of the Turkish Stream gas pipeline project.

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Economics lecturer Melatos believed that Russia would not want to go one step further by risking giving Greece direct aid.

“If you’re in Russia’s shoes at this point, particularly given the economic concerns that Russia itself faces, I don’t think you’d want to be running any risks trying to bail out Greece at this time. Russia is constrained too in this situation….It’s not really in a position to be handing out largesse at this point in time.”

With the Russia-Greece meeting widely seen as an attempt by Athens to prove that it still has friends elsewhere, close to home its bailout program and the ongoing questions over its completion continue to dominate market talk.

Market analysts like Michael Hewson, chief markets analyst at CMC Markets, have become weary of the ongoing saga over Greece, with talks with its creditors seemingly no nearer to a conclusion than they were back in February, when the bailout program was extended.

“Yesterday’s talks between Greece and the Eurogroup (EWG) ended with the EWG issuing the Greeks with an ultimatum to present acceptable proposals for fiscal, pension and labour market reform in the next six days, whatever that means,” Hewson said in a note.

“Given that we’ve been here so many times before, ultimatums generally only work when there is a threat of a significant sanction at the end of the deadline, and short of throwing Greece out of the euro it would seem that any sanction is likely to be limited, particularly if Greece continues to muddle through.”