Greece is facing liquidity problems amid declining tax collection and Athens' failure to reach its targeted primary surplus. The Greek government has to cope with debt repayments to the International Monetary Fund between March and July, and to the European Central Bank between July and December, on top of the normal costs of running the country. Athens has been tapping the reserves from social security funds and state-owned companies over the past few weeks, but this strategy is not sustainable.
As a result, Athens is interested in receiving the final tranche of its bailout program as soon as possible. It also wants to be allowed to issue more treasury bills to finance the state. On March 20, EU Commission President Jean-Claude Juncker offered Greece 2 billion euros of unused EU development funds to finance social programs.
In addition, the Greek banking system has seen substantial deposit outflows, with some 20 billion euros leaving the Greek banking system since December. The outflows temporarily slowed down after Athens reached an agreement with its lenders on Feb. 20 to extend its bailout program for four months. However, they resumed March 18 when the head of the Eurogroup, Jeroen Dijsselbloem, suggested Greece might need to implement capital controls. As long as Greece has an agreement with its lenders, it can count on financial support from the European Central Bank, forcing Athens to seek accommodation with its lenders.
EU authorities have complained in the past about the lack of clarity and detail in Greece's proposals for reform. They have also demanded that Athens make more efforts to improve its fiscal surplus. But Tsipras is under pressure from his own party not to introduce substantial spending cuts. While the Greek government is still popular, opinion polls suggest support for Tsipras is declining. The Eurogroup's strategy is to force Greece into making concessions. To do so, the Eurogroup will probably decide to break Greece's final bailout tranche into smaller installments, linking each disbursement to reforms.
Even if Athens and its lenders reach an agreement, Greece will be in trouble again in late June, when its bailout extension ends. Athens could request a third bailout, but this would be politically costly for Tsipras. Greece may avoid introducing capital controls in the short run, but financial strain will resume as soon as late June.