Greece running out of runway to pay upcoming debt obligations

The Greek bailout saga has continued to make headlines over the past few weeks, contributing to heightened market volatility. Greece has several upcoming debt payments, including very significant ones to the ECB in July and August, suggesting that the window for negotiation is rapidly narrowing.

While slashing spending and raising revenue at all costs has allowed Greece to continue servicing its debt, including a €200mn payment to the IMF this week, operating a budget in this manner can only go on for so long. As a result, there is an increased probability that without access to the remaining bailout funds, Greece is running out of runway to pay its upcoming debt obligations.

A missed payment on an obligation to the IMF or ECB is unlikely to trigger an immediate exit from the euro area. However, the ECB could begin to restrict liquidity funding to Greek banks, suggesting only a short period thereafter in which an agreement could be reached.

Ultimately, TD Economics continues to believe that an agreement will be reached between euro area creditors and the Greek government. Although there are ups and downs, recent overtures by the Greek government point to the desire for an agreement with its European creditors, an outcome supported by polls of the Greek population.