The Bank of Greece and the Ministry of Finance are trying to develop an emergency plan, which will prevent the internal bankruptcy of the country in the event that the economic aid from Europe is cancelled. Reliable sources from the economic team of the government and officials from the "General Accounting" believe that the aid from Europe and the International Monetary Fund will be frozen until a government is formed and until the channels of communication with Brussels and Washington are recovered.
The same sources noted that the funds necessary to pay salaries, pensions, unemployment and other social payments are exceeding 4 billion Euros per month and the State has the necessary funds for such payments until the end of June. Moreover, the needs of the National Insurance Institute for payment of pensions increase with each passing month due to a wave of new retirees who retire because they have this right, since they lost their jobs. In order to meet the increased needs of the funds 350 million Euros have been allocated, which will be paid as an extraordinary grant in mid-June.
Subsequently and depending on the extent to which the aid of 14.1 billion Euros, provided in the loan agreement and the memorandum approved by Parliament, will be suspended, the Ministry of Finance will cut out all subsidies to public institutions, entities, authorities from local self-government, state enterprises, which will have to adjust their expenses depending on their income. The insurance funds will find themselves in a difficult situation since they will be forced to postpone the payment of one-time benefits and payments for medical care.
In order to give time to the country to overcome the current political impasse, and if necessary, the available funds from the Fund for financial stability amounting to 3 billion Euros will be used, so as to cover the emergency needs of banks. However, if procedures for the bank recapitalization are made - even by a caretaker government - with the use of guarantees amounting to 24 billion Euros by the European Financial Stability Fund (EFSF), these three billion Euros could be provided to cover other emergency needs.
Clearly, if all the possibilities run out and funds are emptied, for some state institutions "sudden death" will follow, since they will not be able to pay the salaries of their employees.
Only in the extreme case of internal bankruptcy of the country part of the remuneration of civil servants is likely to be cut.
Message from Brussels
The message on the suspension of aid has already been sent in an emphatic way to the Greek government. On Thursday, the European partners "cut" the tranche of 5.3 billion Euros, which the European Financial Stability Fund was supposed to pay on 10 May, by 1.1 billion Euros.
The EFSF Director Klaus Regling confirmed that the grant was extended to Greece, but noted that no other funds will be granted after June, until the new mission of the supervisory Troika has been carried out in Athens.
The "General Accounting" department of the Greek State also confirmed that the state fund has received part of the instalments provided for in the memorandum, which amounted to 4.2 billion Euros. The balance of 1.1 billion Euros is expected to be disbursed in June, but nothing should be considered as sure. The sum of 4.2 billion Euros will be used for payment of bonds of the European Central Bank, which expire on 18 May, as well as interests.
50 percent of expenses for salaries and pensions
* 50 percent of government expenses are salaries and pensions. Despite the cuts, the amount for pensions this year will exceed 31 billion Euros, while the salaries of civil servants, military officers and workers in local authorities will reach 17.9 billion Euros.
* Due to the crisis and increased unemployment, welfare costs have also increased and this year they will reach 14.1 billion Euros.
* In order to be able to function the State will allocate 10.9 billion Euros and public investment will reach 7.9 billion Euros.
* The State has other expenses amounting to 2.9 billion Euros, and it will have to send 2.4 billion Euros of VAT revenue to the European Union.
* Interest expenses, after the "debt pruning", will amount to 13 billion Euros, and so far 6 billion Euros have been paid.
* From taxes the state plans to collect 52.2 billion Euros, from EU funds 4.7 billion Euros, insurance funds deposits 20 billion Euros, and from local fees 8 billion Euros.
The State cost of operation might exceed 100 billion Euros by the end of the year.
Given the nightmare, the Bank of Greece and the Ministry of Finance are fully informing the parties about the possible financial situation if the loan agreement is cancelled. The state will not be able to pay the interest provided for debt service and it will eventually be forced to cut wages and pensions.
According to estimates, the State operating expenses will exceed 100 billion Euros by the end of the year. This amount includes 12.8 billion Euros for interest on the debt service. Meanwhile, revenues from taxes, contributions, etc. are not expected to exceed 84.7 billion Euros, and if the recession deepens, as provided by analysts, they will decrease even more.
As a result, the deficit will exceed 15-16 billion Euros, while in the case of the hypothetical scenario of non-payment of interest, the primary deficit this year will exceed 2.5 billion Euros. In order to cover this amount, the State will be forced to resort to borrowing. But given that the markets will remain closed, the State will be forced to proceed to a partial suspension of payments.