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How close is Greece to Grexit? Is Greece close to Grexit?
(2 days later)
The Greek government is running out of time and money.The Greek government is running out of time and money.
If it fails to come to a deal with eurozone partners, there is a real chance it could default on its loans. If it fails to come to a deal with eurozone partners to secure the final tranche of its bailout, there is a real chance it could default on its loans.
That could push the Greek government towards leaving the single currency. That could push the Greek government towards leaving the single currency, otherwise known as Grexit.
Is Greece about to default? How bare are Greece's coffers?
It feels as if we have been here before, but there is a growing belief that without a deal on Greek reforms, the left-led Syriza government will run out of cash. Without an urgent cash-for-fiscal reforms deal, the left-led Syriza government will run out of cash. It's been said many times before, but now it really does appear to be true.
Debt interest payments are piling up and two major bills owed to the International Monetary Fund (IMF) are looming. Somehow, the money was scraped together to survive €1bn in debt payments to the International Monetary Fund in May, but an expensive summer looms, with hefty bills due to the IMF and European Central Bank, and payments to holders of short-term treasury bills.
Greece initially has to come up with €200m on 1 May.
But the payment stirring jitters around Europe is a €760m (£550m; $810m) IMF bill due on 12 May.
The government in Athens has already called on public sector bodies including hospitals to stump up any cash reserves they have.The government in Athens has already called on public sector bodies including hospitals to stump up any cash reserves they have.
Already the IMF has turned down a Greek request to delay its debt repayments, according to reports. The mayor of Greece's second city, Thessaloniki, has already handed over millions.
Without at least part of the final slice of its giant EU-IMF bailout, Greece would almost certainly default on its debts.
Greeks see cash run out in undeclared default
Can it stay afloat?Can it stay afloat?
It is barely managing, despite meeting recent payments to the IMF of €448m and €80m to the European Central Bank (ECB). The message from Greece's government is a resounding no. Quite simply it has too many debts to pay in too short a period.
But it has a dilemma. Should the government pay its debts or continue to fund pensions for 2.6 million Greeks and some 600,000 civil servant salaries? For a populist, left-wing party like Syriza, it would be unthinkable to pay its debts to creditors ahead of funding pensions for 2.6 million Greeks and some 600,000 civil servant salaries. It has already moved to re-employ 4,000 civil servants whom the previous government got rid of.
For a populist, left-wing party like Syriza, swept to power on a wave of anger at austerity, it would be unthinkable to stop paying its own citizens. Even a cut in pensions is out of the question. Greece's last cash injection from its international creditors was in August and the final €7.2bn instalment from its two €240bn EU-IMF bailouts is now seen as vital.
Greece has already been rescued by two EU/IMF bailouts to the tune of €240bn since 2010.
But it needs to persuade the EU to unlock a €7.2bn bailout tranche.
Even then Greece might still need a third bailout worth tens of billions. But if Greece's reform package fails to satisfy its creditors, there will be no new cash.Even then Greece might still need a third bailout worth tens of billions. But if Greece's reform package fails to satisfy its creditors, there will be no new cash.
What's the deadline? What next for Greece?
So many crunch dates have come and gone for Greek reforms to be agreed, but the consensus is now that if any bailout money is to be released then the talking will have to stop by 30 June. Will default push Greece out of the EU?
That is the date that the eurozone's four-month bailout extension agreed with Greece's new government in February runs out. If the government defaults on its loans, it risks cutting off its liquidity from the European Central Bank (ECB), which is keeping both the banks and the government afloat. The banks are reliant on €79bn in emergency liquidity assistance (ELA).
EU finance ministers say Greece knows time is running out and there is an urgent need for agreement. Deprived of liquidity, the Athens government would risk a "forced default", seen as the worst possible option, which could plunge Greece out of the euro and create a downward spiral.
What if it does default?
Greek banks are already on life support. They are relying on €74bn in emergency liquidity assistance (ELA) from the European Central Bank.
If the government defaults on its loans, it risks cutting off its liquidity from the ECB, which is keeping both the banks and the government afloat.
A "forced default" would create a downward spiral.
Tens of billions of euros have already been withdrawn from private and business accounts and deposits could leave even faster.Tens of billions of euros have already been withdrawn from private and business accounts and deposits could leave even faster.
To halt a run on the banks there might be a ban on withdrawals.To halt a run on the banks there might be a ban on withdrawals.
How serious for us is the Greek tragedy?
Does that mean Grexit?
Greece's future in the euro is looking so shaky that UK bookmaker William Hill stopped taking bets on the chances of a Grexit.
And a forced default, seen as the worst possible option, could plunge Greece out of the euro.
"A forced default is where the coffers are empty, you stop paying employees and say, 'We're using all our resources to pay the hospital bills'," says Prof Iain Begg of the London School of Economics."A forced default is where the coffers are empty, you stop paying employees and say, 'We're using all our resources to pay the hospital bills'," says Prof Iain Begg of the London School of Economics.
Greece would return to the drachma, suffer instant devaluation and inflation and there would be a banking crisis.Greece would return to the drachma, suffer instant devaluation and inflation and there would be a banking crisis.
It could end up a pariah in the international markets for years, much like Argentina in 2002, warns Prof Begg.It could end up a pariah in the international markets for years, much like Argentina in 2002, warns Prof Begg.
Greeks want to stay in the single currency, but a forced default would likely push them out.Greeks want to stay in the single currency, but a forced default would likely push them out.
Could Greece find help in Russia? It would be a catastrophe that would lead to mass unemployment and the closure of Greek companies, according to Prof Dimitrios Kousenidis of Aristotle University of Thessaloniki.
Is Grexit inevitable? "If there is a Grexit it would be because Greece was without any funding. No-one would fund Greece but the (debt) payments would still have to be made," he says.
There could be a deal that keeps the euros rolling in and maintains the eurozone's lifeline to Athens. How serious for us is the Greek tragedy?
Given the wide differences between Greece and its EU partners, that might seem unlikely. So is Greece staring at Grexit?
However, even failure to find a deal would not necessarily mean forced default or Grexit. Nor would missing its next debt payments. "If there's no deal by the end of May, Grexit is inevitable," says Prof Kousenidis. "There has to be a deal."
One survey of 29 economists put the chance of debt default at 40% and Grexit at 30%, but most thought that one would not trigger the other. Greece's future in the euro looked so shaky that UK bookmaker William Hill some time ago stopped taking bets on the chances of a Grexit.
And yet, as the deadline nears the rhetoric from Greek and European leaders has calmed.
Traders appear to be more optimistic. In late April, a poll for Reuters suggested as many as 40% saw Greece leaving the single currency. That figure is now closer to a quarter.
If there is any optimism, it is that Grexit is more unthinkable for Greece's fellow EU member states than it was.
And not everyone believes that failure to find a deal would be the end of the story.
Greeks feel stress of default threat
Could it default and survive in the euro?
It might seem unlikely, but even without a deal with Greece's international creditors there could be an arrangement that keeps the euros rolling in and maintains the eurozone's lifeline to Athens.
It would not necessarily mean forced default or Grexit.
For some economists, potentially the best option would be for Greece to pursue a "managed default".For some economists, potentially the best option would be for Greece to pursue a "managed default".
That could mean more relaxed and longer terms on servicing the debt on its eurozone loans.That could mean more relaxed and longer terms on servicing the debt on its eurozone loans.
But it could also mean Greece remaining in the eurozone with strict capital controls to stop money from flooding out of Greece.But it could also mean Greece remaining in the eurozone with strict capital controls to stop money from flooding out of Greece.
One idea, reportedly under consideration in Germany, would be for the ECB to continue funding Greek banks while considering them in default, in return for strict guarantees for structural reform. ECB Vice President Vitor Constancio said in April that even if Greece defaulted on its debt there was no legislation that required its expulsion from the euro.
Just because the state defaulted, if the banks remained solvent then there were "no automatic implications" for the banks, he said.
One idea doing the rounds is that if the government runs out of cash, it could create a parallel currency to the euro and pay civil servants with IOUs.
The risk of that would be that such IOUs would trade at a discount to genuine euros, which would swiftly disappear from Greek banks.
Greece would struggle to find creditors outside Europe - SchaeubleGreece would struggle to find creditors outside Europe - Schaeuble
Is there a risk of contagion?Is there a risk of contagion?
The European Union has worked hard to cordon off the banking difficulties of one member state from the other 27 and the idea no longer scares eurozone partners such as Germany. But the IMF has warned that "risks and vulnerabilities remain". The European Union has worked hard to cordon off the banking difficulties of one member state from the other 27.
Default would mean a steep loss for the ECB, possibly €110bn for its exposure to banks and around €20bn in the money spent on buying up Greek government bonds. But the IMF has warned that "risks and vulnerabilities remain".
Default would mean a steep loss for the ECB, with its €110bn exposure to Greek banks and around €20bn in the money spent on buying up Greek government bonds.
As a central bank, the ECB could simply print the money to recapitalise itself, but that is considered anathema to Germany.As a central bank, the ECB could simply print the money to recapitalise itself, but that is considered anathema to Germany.
Market contagion is difficult to predict, but there is also the potential of political repercussions. Several governments facing anti-euro movements will be watching developments in Greece nervously.Market contagion is difficult to predict, but there is also the potential of political repercussions. Several governments facing anti-euro movements will be watching developments in Greece nervously.
How vulnerable would UK be to Grexit?