In March of 2013 the Troika gave Cyprus a “take it or leave it offer” that destroyed many savers who were foolish enough to keep money in Cypriot banks despite obvious troubles.

Given that Greece needs a third bailout, odds Greece receives a similar kind of offer increase every day.

Last week Greece averted a default on a loan repayment to the IMF only by borrowing money from the IMF to pay the IMF back. For details please see my May 12 article Greece Empties IMF Reserve Account to Pay IMF.

Next month Greece has still more payment obligations and the reserve fund is tapped out. Where will the money come from?

Take it or Leave It

The Financial Times discusses the situation in Tsipras Letter Reveals Precariousness of Greece’s Finances.

Greece came so close to defaulting on last week’s €750m International Monetary Fund repayment that the prime minister warned IMF chief Christine Lagarde he could not pay it without EU aid.

Alexis Tsipras wrote to Ms Lagarde, warning that the IMF repayment would be missed unless the European Central Bank immediately raised its curbs on Greece’s ability to issue short-term debt.

The letter, first reported by the Greek daily Kathimerini but independently confirmed by the Financial Times, raises questions about how close Athens is to bankruptcy. In addition to payments due to the IMF next month totalling €1.5bn, the Greek government has struggled to meet its wage and pension bills, which must be paid at the end of the month. The next €300m IMF payment is due on June 5.

The contents of the Greek prime minister’s letter were revealed by Ms Lagarde at a closed-door meeting of the fund’s board on Thursday.

According to officials briefed on the talks, Poul Thomsen, head of the IMF’s European department, warned the board that negotiations on the Greek economic reform package remained so unproductive that the fund could be forced to withhold its €3.6bn portion of the €7.2bn aid tranche.

Officials said Ms Lagarde fully backed Mr Thomsen, telling staff that they should not proceed with a “quick and dirty” approval process.

“It’s clear that we are very far from something the IMF will be able to support without fundamentally breaking its own rules,” said one official briefed on the fund’s board discussion.

According to two officials briefed on the talks, at least one board member raised the possibility of presenting a “take it or leave it proposal” to Greece.

The idea of a “Cyprus-like” presentation to Greek authorities has gained traction among some eurozone finance ministers, according to one official involved in the talks.

The official noted that the recent public backing by Wolfgang Schäuble, Germany’s finance minister, for a Greek referendum fits into such a scheme. Under this scenario, Mr Tsipras would take the bailout ultimatum to a nationwide vote for approval.

However, another official involved in the talks cautioned that a “take it or leave it” approach remained only one of many ideas being discussed informally as a way to finalise an agreement.


There are two roadblocks to the “Take it or Leave it Offer”

Figuring out how big the third “bailout” will need to be.
The IMF believes Greek debt needs another haircut, but Germany, Finland and other countries insist there will be no more haircuts.

Once again, anyone who has money in Greek banks has mush for brains.  Nothing good can possibly come from it.

Two very bad outcomes for Greek depositors include a Cyprus-like bail-in and/or a Greek return to the Drachma coupled with a massive haircut on the currency.

Mike “Mish” Shedlock