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Greek debt crisis: Is Grexit close? Greek debt crisis: Is Grexit inevitable?
(3 days later)
The Greek government is running out of time and money. Greece's government is almost out of money and cannot afford a debt repayment of €1.5bn ($1.7bn; £1.06bn) to the IMF, which is due on Tuesday.
It needs a deal with eurozone partners within days to secure the final tranche of its bailout and avoid defaulting on its debts. Months of negotiations on a deal have collapsed and Prime Minister Alexis Tsipras has called a referendum for 5 July on the proposals from the IMF and the EU, which he says are against European values. But Eurozone finance ministers have refused to extend the bailout.
Fresh proposals from the government for reforms have raised hopes of an agreement. Default appears inevitable and there is a growing risk of Greece lurching out of the single currency - which has come to be known as Grexit.
But without a deal, default could push the country towards leaving the single currency - a prospect that has become known as Grexit. Is Greece about to default on its loans?
How bare are Greece's coffers? It is now almost certain that Greece will default on its lMF debt repayment due on Tuesday 30 June.
Without an urgent cash-for-fiscal reforms deal, the leftist Syriza government will run out of cash. That deal needs to be agreed by the end of June, when Greece's bailout deal with its eurozone creditors runs out. That is also the day when the terms of its eurozone bailout run out.
Somehow, Greece scraped together €1bn (£730m; $1.1bn) in debt payments to the International Monetary Fund (IMF) in May, but Greece has already postponed June payments to the IMF and further hefty bills are due, to the IMF, European Central Bank (ECB) and holders of short-term treasury bills. Greece's last cash injection from its international creditors was way back in August 2014, so the final €7.2bn instalment from its two EU-IMF bailouts is now vital.
The government in Athens has called on public sector bodies - including hospitals - to surrender any cash reserves they have. Mr Tsipras has been trying to strike a deal with Greece's creditors since he came to power in late January, but repeated attempts to come to an agreement have failed.
The mayor of Greece's second city, Thessaloniki, has already handed over millions, but other towns and cities are refusing to pay up. Greece appealed for the bailout terms to be extended to cover the referendum but its European partners have refused to extend the programme beyond 30 June.
At the moment the ECB is keeping both the banks and the government from disaster. It has approved more emergency funding to help Greek banks to cope with mass withdrawals. With queues forming outside some Greek banks, there are fears that Greeks could try to remove their savings. So the biggest decision for the ECB is whether to carry on with its programme of keeping the banks afloat, through an €89bn cash fund known as Emergency Liquidity Assistance (ELA).
But without at least part of the final €7.2bn slice of its giant EU-IMF bailout, Greece would almost certainly default on its debts. Even if the ECB kept the banks afloat before next Sunday's referendum, a no-vote would likely prompt the ECB to withdraw support anyway. So Greece's government is staring at default, sooner or later.
Greeks see cash run out in undeclared default Are Greece's coffers really bare?
Can it stay afloat? Greece has not only postponed its June repayments to the IMF until the last minute, but it also needs to pay €2.2bn in public sector salaries, pensions and social security payments.
The message from Greece's government is a resounding no. Quite simply, it has too many debts to pay in too short a period. Public sector bodies - including hospitals - have already been asked to surrender any cash reserves they have.
At the start of June, Mr Tsipras's government announced it would roll its four June payments to the IMF into one, giving it until the end of the month to find the necessary €1.5bn. The mayor of Greece's second city, Thessaloniki, handed over millions, but other towns and cities have refused to pay up.
But it also needs to find another €2.2bn in June for public sector salaries, pensions and social security payments. There seems little doubt that Greece's cash-flow is running on empty.
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 made redundant by the previous government. Does default mean leaving the eurozone?
Greece's last cash injection from its international creditors was in August 2014, so the final €7.2bn instalment from its two EU-IMF bailouts, worth €240bn in total, is now seen as vital. There is no precedent for a country to leave the euro and no-one knows how it might happen.
Even then, Greece is likely to need a third bailout worth tens of billions. But if its reform package fails to satisfy creditors, there will be no new cash. Greek Finance Minister Yanis Varoufakis was adamant there was no provision for any country to leave the euro, and he said the 5 July referendum was not about Grexit.
Greece: What you need to know ECB Vice President Vitor Constancio made the same point in April, saying if Greece defaulted on its debt there was no legislation that required its expulsion.
Will default push Greece out of the euro? But without financial support there seems little scope to remain in the single currency and bookmakers and traders have already lowered the odds of Grexit to 3-1.
If the government defaults on its loans, it risks cutting off its liquidity from the ECB. "If there's no deal, Grexit is inevitable," says Prof Dimitrios Kousenidis of Aristotle University of Thessaloniki. "There has to be a deal."
The banks are reliant on €84bn in emergency liquidity assistance (ELA), which the ECB allows them to draw from the Greek central bank. Not only must Greece find debt repayments for June, it has a hot summer of instalments owing to the ECB too, with a €3.5bn repayment due on 20 July. If Greece failed to pay that, it would be very difficult for the Frankfurt-based bank to justify propping up the Greek banking system further.
If Greece fails to pay the IMF on 30 June, IMF chief Christine Lagarde has said there will be no grace period - Greece will be in default. So what would Grexit look like?
And if Greece misses its 20 July payment to the ECB, it would be very difficult for the Frankfurt-based bank to justify continuing to prop up the Greek banking system. Deprived of liquidity, the Athens government would risk a "forced default" on its debts, seen as the worst possible option, which could plunge Greece out of the euro and create a downward spiral.
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. Tens of billions of euros have already been withdrawn from private and business accounts and some queues have formed outside Greek banks. The next step would be capital controls, which would restrict Greeks from withdrawing or transferring their deposits.
Tens of billions of euros have already been withdrawn from private and business accounts and deposits could leave even faster. Relations between Mr Tsipras's government and the rest of the eurozone are already tense. The risk is that a messy default could cause even more harm to the Greek economy.
To halt a run on the banks, there might be a ban on withdrawals in the form of capital controls.
Will the ECB call a halt to its emergency assistance?
"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 its pre-euro currency, the drachma, suffer instant devaluation and inflation and there would be a banking crisis.Greece would return to its pre-euro currency, 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.
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.
Tourism, one of Greece's main earners, would be hit hard, dealing a hammer blow to an ailing economy.Tourism, one of Greece's main earners, would be hit hard, dealing a hammer blow to an ailing economy.
How serious for us is the Greek tragedy? Unemployment, already steep, could climb further and Greek companies would close, Prof Kousenidis believes.
Greece - deal or no deal? Some economists believe a return to the drachma could eventually benefit the economy, but it is difficult to see anything positive in the short term.
So is Greece staring at Grexit? Could Greece default and remain in the euro?
"If there's no deal, Grexit is inevitable," says Prof Kousenidis. "There has to be a deal." It might seem unlikely at the moment, but even without a deal with Greece's international creditors, there could be an arrangement that maintains the eurozone's lifeline to Athens and avoids a messy default.
Bookmakers and traders have put the chance of a Greek exit from the euro at more than 30%. For a start, opinion polls in Greece suggest that while the government's anti-austerity policies are popular, there is still majority support for staying in the eurozone.
As the deadline nears, the rhetoric from both sides has become more heated and the markets more jittery.
Neither side wants a Grexit, but with EU leaders demanding major pension and labour reform and a Syriza-led government elected on an anti-austerity platform, there is little room for manoeuvre.
Some reports suggest European officials might consider extending the eurozone part of the bailout to March 2016, which would give more time for a reform deal to be agreed and synchronise the loans with the IMF's bailout timetable. Or the creditors might find a way of releasing part of the €7.2bn remaining in the bailout to prevent a Grexit.
In the meantime, the Greek government has apparently made several concessions in last-minute proposals put forward to eurozone leaders.
Although no deal has been struck, key obstacles including savings in pensions and VAT hikes seem to be eased.
The plan is believed to propose new taxes on businesses and the wealthy, curbs on early retirement, and higher social and health care contributions for pensioners.
Greeks feel stress of default threat
Greek debt talks - main sticking points
See Greece's latest proposals in full
Could Greece 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. Strict capital controls could be imposed to stop money from flooding out of Greece and a parallel currency to the euro could operate with civil servants paid with IOUs. But few economists see that as workable and the most likely outcome would be an eventual return to the drachma.
But it could also mean Greece remaining in the eurozone with strict capital controls to stop money from flooding out of Greece. It would be less messy, but it would be a Grexit.
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.
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. But few economists see that as workable.
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.The European Union has worked hard to cordon off the banking difficulties of one member state from the other 27.
But the IMF has warned that "risks and vulnerabilities remain" and the greater the talk of Grexit, the more nervous the markets become.But the IMF has warned that "risks and vulnerabilities remain" and the greater the talk of Grexit, the more nervous the markets become.
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. Default would mean a steep loss for the ECB, which has already lent €118bn to Greek banks and has spent €20bn 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.
But there is more at stake than the markets. Several governments facing anti-euro movements are watching developments in Greece nervously.But there is more at stake than the markets. Several governments facing anti-euro movements are watching developments in Greece nervously.
How vulnerable would UK be to Grexit? Greeks see cash run out in undeclared default