Athens' funding challenge

Greece's new finance minister, Euclid Tsakalotos, has his work cut out for him.

By July 20, he must find 3.5 billion euros ($3.9 billion) to repay the European Central Bank (ECB) for a maturing bond and to keep up with interest dues.

Failure would almost certainly mean a Greek exit from the eurozone. The ECB would be forced to recognize that Greece's banks were insolvent and cut them off from further funding under its Emergency Liquidity Assistance (ELA) program.

As a result, Greece's already wobbly banking sector would collapse.

This is because Greek banks have had to hand over collateral for their ELA loans. That collateral is composed largely of Greek government bonds. If Athens fails to pay back its debts, those bonds would no longer be accepted.

Athens would then have to immediately re-introduce a national currency to allow the government to keep paying its bills.

Caught in the headlights

Mr. Tsakalotos, a polished, Oxford-educated British-Greek Marxist with no management experience to speak of, doesn't have many options.

Private creditors are out of the question. Further IMF loans are off the table too, since Greece is already in arrears to the Washington, D.C.-based institution after it missed a 1.6 billion-euro payment at the end of June.

Turning to Russia isn't a viable solution either. Russia's finance minister, Anton Siluanov, said Tuesday that Russia never even considered lending money to Greece because Athens didn't ask.

Siluanov added that Greece might be able to get some funding from the "New Development Bank" (NDB) that was set up by the so-called BRICS nations on Thursday. But Athens would first have to "work on getting its liabilities in line with the possibilities of its economy," Siluanov said.

In any event, the NDB isn't in operation yet, so it can't solve Greece's immediate problem.

Greece's game plan is therefore reduced to debt reshuffling. It will need to borrow money from one European financial institution to pay back another.

That's why Athens submitted an application for a three-year bailout package to the European Stability Mechanism (ESM) on Wednesday.

Clearing the ESM hurdle

That fund was conceived in September 2012 to handle all new aid to distressed eurozone member states. To qualify for a bailout, a state must first present a list of economic and fiscal reforms that would credibly restore its financial stability.

The applicant must also have ratified the European Fiscal Compact, which puts a low ceiling on deficit spending.

Europe's leaders have given Greece until Sunday to lay out a detailed reform proposal that is acceptable to its international lenders. But even if those institutions approve an ESM bailout, a deal still has to be approved by eurozone members' national parliaments - and more than a few of them across Europe are sceptical.

Buying time

Getting an ESM bailout for Athens through eurozone members' parliaments will take time. That's why Tsipras has also asked for a bridging credit to allow him to pay back the ECB on July 20 and meet other financial obligations over the next few weeks.

But Greece's creditors have made clear they won't approve a bridging credit unless Athens first submits an acceptable proposal, one which involves reforms and fiscal measures that Greece has so far resisted.

And they want that nailed down by Sunday.

If Greece succeeds, it could pull the country back from the brink, where it has been teetering recently. ESM credits are more flexible and less fraught with solvency risks than credits from the ECB or the IMF.

Such a bailout could also allow the country to restructure its debt on easier terms, ones with longer maturity dates and near-zero interest rates. Those terms could even be eased further if Athens can convince the ESM that it has made progress on reforms.

What was the #Greferendum all about?

The ESM bailout that Tsipras has applied for is different than the offer Greece rejected in June over which it called last Sunday's contentious referendum.

Last month's failed negotiations were aimed at extending an existing bailout program that was funded by the ESM's predecessor, the European Financial Stability Facility, or EFSF, a temporary fund designed to handle emergency bailouts during the euro crisis four years ago.

At best, another extension would have bought Athens more time and an additional 7.2 billion euros, enough to last them a few more months. But it would have to have been followed by a longer-term ESM bailout negotiation.