Yanis Varoufakis, Greece's new Finance Minister, is all over the news lately for standing up to the European Troika -- the ECB, IMF and European Commission (EC) (In my opinion, Germany should be included in this as a stand-alone opposition entity too).
But, while the new Greek Administration seeks to reduce the debt burden, the ECB is calling what is so far their unspecified bluff, by refusing to process Greek bonds.
A Wall Street Journal article summarizes the situation thusly:
"Even with an extension of the current program, there will be challenging months ahead. But without such an extension the situation would become very tough," one EU official said.
Another EU official confirmed that there was little willingness among eurozone governments and the ECB to allow Greece to issue more short-term debt, so-called Treasury bills, to plug funding holes in the coming days. An informal request to increase treasury-bill issuance to 25 billion from 15 billion currently--made by Mr. Varoufakis at meetings in Brussels earlier this week--is a no-go for Greece's creditors"
Europe's reluctance to let Athens borrow more short-term debt raises questions on how the government will meet debt repayments in coming months. In March and June, Greece has to pay almost 4 billion to the International Monetary Fund and smaller creditors. Bigger issues await in July and August, when some 7 billion in bonds held by the ECB mature.
But Greece's financial situation could become dicey even before then. If the current bailout program expires as scheduled on Feb. 28, Greek banks won't be able to get liquidity from the ECB anymore, due to the country's bad credit rating. After that, they could still get funding from the Greek central bank, through so-called Emergency Liquidity Assistance or ELA, but this is also subject to ECB approval.
One of the EU officials said that ELA could continue "for some time," without giving further details. The ECB has in the past threatened to cut off ELA funding to banks in Ireland and Cyprus to force national governments to agree on a new bailout program with the eurozone.
Germany, meanwhile, the biggest holder of Greek debt, is saying "Nein" to any thought of writing off the debts, and Varoufakis is back-pedaling perhaps by saying there is no question that Greece will pay its debts and will stay in the EU. The fact is, though, that without a new loan by the end of February, Greece will default, so there is indeed, very much a question of whether it will repay its debts.