Negotiations remain highly uncertain at a time when the liquidity situation has further deteriorated, ahead of important end-of-month pension and salary payments and about €1.7bn IMF payments due in June (5, 12, 16 and 19 June).
Despite incremental progress on the negotiations front, key differences between the Greek government and institutions remain, testing the market’s recent complacency surrounding the likelihood of a Greek default and exit. Despite our view of a last-minute agreement, the dynamics of the necessary process remain highly uncertain.
A political change could emerge through: 1) a government re-shuffle with more radical members exiting; 2) a referendum; or 3) snap elections.
We think the first scenario is the most likely. It would seem the least disruptive and allow Greece to ‘return’ to a program agreement before end-June. More importantly, we think the Eurogroup could find ways to bridge temporary funding gaps (e.g., by disbursing SMP profits or raising the T-bill ceiling), if it thought the prospects for successfully finalizing program negotiations were good (see “Euro Themes: Greece: A crisis to avert a crisis”, 21 May 2015).