News analysis: Greek cash crunch: rumor or reality?

Greece is heading towards a cash crunch as early as late March with no financial lifeline from its international creditors, foreign analysts have forecast in recent weeks.

However, Greek government officials insist the situation is under control, dismissing "speculation" about contrary.

So is the dark shadow of a forthcoming Greek cash crunch a rumor or a reality?

For Greek analysts, there is no smoke without fire, small or large. The risk is not imagined, but following Monday's latest Eurogroup meeting results, there is an increasing glimmer of hope that Greece is getting back on track and any flames will be extinguished in time.

At the Feb. 20 Eurogroup talks, the newly-elected Radical Left government passed a first test by agreeing to a four-month extension of the four-year bailout to stay afloat.

The major challenge now is to implement the proposed reforms Athens put forward in exchange for the release of a portion of the eurozone tranche without delay.

"Should Greek officials fail to do so, public finances will be put under more strain, the moment of truth will come closer, and Prime Minister Alexis Tsipras will have to rise to the occasion," analyst Dimitris Kontoyannis, an economics lecturer at the City University of New York, said.

Greece needs to repay about 1.5 billion euros (about 1.61 billion U.S. dollars) to the International Monetary Fund (IMF) later this month. It has already paid off a smaller amount recently and guaranteed that all financial needs would be met in a similarly timely manner with the repayment of the IMF presented as a top priority.

These obligations also included the monthly payment of civil servants' salaries and pensions which were estimated to be a further 2 billion euros.

In the meantime, budget revenues are lagging and the options for Tsipras are limited, according to Kontoyannis.

The Greek central government needs to borrow funds, for example, from the bank deposits of social security funds and state-controlled entities with the lure of a high interest rate and in addition postpone payments to suppliers, which would further strangle the recession-hit economy.

Alongside this, in order to change the climate, Kontoyannis stressed, budget revenues must pick up and some kind of external help should arrive soon.

According to the Financial Times, Greece's cash-strapped Syriza government is pressing the country's social security funds to hand over hundreds of millions of euros immediately to ensure that pensions and civil servants' salaries are paid in March.

After Monday's Eurogroup meeting, the government is looking forward to the start of talks between teams of Greek technocrats and representatives of the institutions in Brussels and Athens on Wednesday for the conclusion of the review which will hopefully unlock further vital aid in April. They are also eagerly anticipating the European Central Bank (ECB) officials' gathering this week to review the emergency liquidity assistance (ELA) extended to Greek banks.

"It was agreed that there is no more time to waste," Greek Finance Minister Yanis Varoufakis told media in Brussels after Monday's Eurogroup meeting.

The upcoming talks open the way for the implementation of February's bridge agreement and reflect creditors' support to Greece, he stressed.

For Varoufakis, the country's funding problem and relationship with Europe is undergoing a "normalization process" and Greek reform proposals will be examined with lenders over the next weeks so that by June the two sides will have agreed on a final contract for the reconstruction and growth of Greek economy.

"The perception of the latest Eurogroup meeting's outcome could influence the behavior of the Greek public and speed up events or provide more time for negotiations. Once again, the government and the country are at a crossroads. The government should work with the euro zone to bridge their differences," according to Kontoyannis.

It's crunch time, though, as Greek banks seem unable to finance the ailing economy at the moment and Brussels plans to send a senior competition official to Greece later in March to check on the progress of the lenders' restructuring plans, added Yannis Papadoyannis, a financial news editor of Kathimerini newspaper and author of books on the Greek banking system and the international financial crisis.

The withdrawal of up to 20 billion euros in deposits in recent months due to political uncertainty and their marginal replacement by liquidity supplied from ELA are not leaving Greek banks space to adequately finance enterprises and households.

In the meantime, outstanding debts towards the state from individuals and businesses have reached more than 76 billion euros. While Greek officials estimated they could collect about 10 billion euros through a settlement for repayment in arrears, the uncertainty of the past few weeks maintains the reluctance of taxpayers to open their pocketbooks.

"Liquidity fears have slowed payments and, according to the best case scenario projections of the finance ministry, there could be a billion euro gap between state revenues and spending by end March," according to Sotiris Nikas, a financial media commentator at local SKAI radio and Epikaira political and economic affairs magazine.

"Coming up with cash appears particularly difficult, increasing concerns regarding a possible "accident" over the course of this month," Nikas said.

Time and money are running out. In the event of an impasse in negotiations with lenders in coming weeks, Greece is at risk of an internal default which means the government could be forced to freeze payments to state procurers for a long time and in addition most likely pay reduced pensions and salaries.

Monday's developments showed the window of opportunity to resolve Greece's funding problem promptly was opening wider and the noose had never been more tight, ruling party MP Costas Lapavitsas, an economics professor at the University of London, said Tuesday.

"With the start of consultations on Wednesday we will most likely see a decline of the current tension and a normalization of the financing of Greek economy," he said, as the Athens Stock Exchange was opening with gains.

Vima daily newspaper also perceived an "opportunity for normalcy" in an editorial printed on Tuesday said.

"After weeks of difficult talks, there is a glimmer of normalcy.... We are essentially in a peace process, from which the Greek economy may only benefit," the article said.

"If the funding problems are overcome, then the climate will improve, the economy will rid itself of the many waves of insecurity, and it will return to relatively normal circumstances," the newspaper noted, echoing lenders' call to the Greek government to implement its pledges and deliver on commitments post haste.

Greeks have a reputation of doing everything at the eleventh hour. At the Summer Olympics in 2004, they presented the world with an unforgettable opening ceremony after long delays caused by a small group of construction workers still tacking down carpet. This time, maybe they can pull off something similarly spectacular by avoiding a cash crunch, analysts mused. Endit