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Greece debt crisis: Are Greeks heading for Grexit? Greece debt crisis: Can Grexit be avoided?
(about 7 hours later)
Greece's exit from the eurozone - a "Grexit" - has become a genuine possibility, as eurozone leaders decide whether to agree a third bailout. Eurozone leaders have agreed to the conditions for Greece to seek a third bailout - but its exit from the eurozone, a "Grexit", remains a genuine possibility.
Greek banks are shut, almost out of cash and days away from collapse.Greek banks are shut, almost out of cash and days away from collapse.
Prime Minister Alexis Tsipras has promised widespread reform in return for a three-year loan of €53.5bn (£38.4bn; $59.47bn). Prime Minister Alexis Tsipras promised widespread reform in return for a three-year loan of €53.5bn (£38.4bn; $59.47bn).
But the EU and IMF say Greece will need far more than that and eurozone finance ministers say even before a deal is considered Greece needs to pass legislation by 15 July. But the EU and IMF say Greece will need far more than that and eurozone finance ministers say even before a deal is considered Greece needs to pass key legislation by 15 July.
Without a bailout deal Greece will tumble out of the eurozone. If the bailout deal fails Greece will tumble out of the eurozone.
What are the scenarios?What are the scenarios?
Simply put, Greece will stay in or will leave the euro, either permanently or at least temporarily.Simply put, Greece will stay in or will leave the euro, either permanently or at least temporarily.
InIn
Temporary GrexitTemporary Grexit
OutOut
Scenario one: Greece stays inScenario one: Greece stays in
This is a tall order, but France and Italy are among those pushing for Greece to stay in. First the Greek government and parliament would have to agree tougher reforms, days after MPs ratified a package put to the eurozone by Prime Minister Alexis Tsipras. This is a tall order, even though eurozone leaders have signed up to a deal for Greece to stay in the euro.
Buoyed by a "No" vote on an earlier EU plan, Mr Tsipras called for a new bailout in return for crucial tax and pension reforms. Seventeen coalition MPs did not back the plan and another 15 held their noses. So he would have to rely on opposition parties to get any new eurozone reforms through. First the Greek government and parliament would have to agree a toughened package of reforms, days after MPs ratified a package put to the eurozone by Prime Minister Alexis Tsipras.
And this is a major obstacle for the Greek leader, as 17 coalition MPs did not back his initial plan and another 15 held their noses. So he would have to rely on opposition parties to get any new eurozone reforms through.
Senior figures in his left-wing Syriza-led government, including Parliament Speaker Zoe Constantopoulou and Energy Minister Panagiotis Lafazanis, already appear hostile.Senior figures in his left-wing Syriza-led government, including Parliament Speaker Zoe Constantopoulou and Energy Minister Panagiotis Lafazanis, already appear hostile.
Even then, parliaments in Germany and Finland have to agree to new bailout talks starting. And if the negotiations conclude successfully, eight eurozone parliaments have to give the green light to a deal. Even if he is successful, parliaments in Germany and Finland have to agree to new bailout talks starting. And then, if the negotiations conclude successfully, eight eurozone parliaments have to give the green light to a bailout agreement.
Under any deal there will have to be short-term bridge financing to cover Greece's immediate economic and debt repayments needs, as well as European Central Bank (ECB) help to reopen the banks and restore liquidity. Under any deal there will have to be short-term bridge financing to cover Greece's immediate economic and debt repayment needs, as well as European Central Bank (ECB) help to reopen the banks and restore liquidity.
Scenario two: Greece leaves euro temporarilyScenario two: Greece leaves euro temporarily
It had been thought this proposal from the German finance ministry was not even on the table. But it is now becoming a credible option, even if France's President Francois Hollande has said there is "no such thing as temporary Grexit". It had been thought this proposal from the German finance ministry was not even on the table. But it then appeared in a draft document to be considered by eurozone leaders.
Details are sketchy but Greece would be offered "swift negotiations on a time-out from the euro area, with possible debt restructuring". The temporary Grexit would last at least five years.Details are sketchy but Greece would be offered "swift negotiations on a time-out from the euro area, with possible debt restructuring". The temporary Grexit would last at least five years.
The German proposal is clear that "sufficient debt restructuring" is not possible within the eurozone. As part of the "time-out" solution, there would be technical and humanitarian assistance. But no mention is made of debt relief, which the International Monetary Fund believes is necessary.The German proposal is clear that "sufficient debt restructuring" is not possible within the eurozone. As part of the "time-out" solution, there would be technical and humanitarian assistance. But no mention is made of debt relief, which the International Monetary Fund believes is necessary.
What is not clear is whether Greece would move to a different currency or still use the euro, while not being part of the eurozone. France's President Francois Hollande has said there is "no such thing as temporary Grexit", and he is probably right. For Greece the idea of leaving and then returning would be all but impossible.
And German Chancellor Angela Merkel said all 19 eurozone members would have to agree to a Grexit - yet Greece had insisted all along that it wanted to stay in the euro.
Scenario three: Greece leaves eurozoneScenario three: Greece leaves eurozone
There are so many pitfalls for eurozone negotiators in the coming days and trust in the Greek government is at such a low level that Grexit has become a realistic option. There are so many pitfalls for eurozone negotiators in the coming days and trust in the Greek government is at such a low level that Grexit remains a realistic option.
Even if Mr Tsipras's ministers and parliament do all that is asked of them, they still have to rely on Finnish and German MPs to vote for bailout talks to go ahead.Even if Mr Tsipras's ministers and parliament do all that is asked of them, they still have to rely on Finnish and German MPs to vote for bailout talks to go ahead.
Greece's financial system has ground to a halt and without urgent temporary financing it is hard to see how the country can remain in the eurozone.Greece's financial system has ground to a halt and without urgent temporary financing it is hard to see how the country can remain in the eurozone.
The banks have been shut since 29 June, when the ECB froze their lifeline. It has not increased its support (Emergency Liquidity Assistance) since then.The banks have been shut since 29 June, when the ECB froze their lifeline. It has not increased its support (Emergency Liquidity Assistance) since then.
Amid all the talk of a temporary deal is a key deadline on 20 July, when Greece faces a €3.5bn debt repayment to the ECB.Amid all the talk of a temporary deal is a key deadline on 20 July, when Greece faces a €3.5bn debt repayment to the ECB.
What are capital controls?What are capital controls?
If Greece left the eurozone, what currency would it use?If Greece left the eurozone, what currency would it use?
If Greece were to fall out of the euro, one potential option for the banks would be to reopen with a parallel currency before the revival of Greece's former currency, the drachma.If Greece were to fall out of the euro, one potential option for the banks would be to reopen with a parallel currency before the revival of Greece's former currency, the drachma.
Another would be to place Greece in a type of eurozone quarantine, where it would use the euro but not be a fully-fledged part of it. After all, Kosovo and Montenegro have adopted the euro without being inside the eurozone. This method could also be used if Greece were to leave the eurozone on a temporary basis.Another would be to place Greece in a type of eurozone quarantine, where it would use the euro but not be a fully-fledged part of it. After all, Kosovo and Montenegro have adopted the euro without being inside the eurozone. This method could also be used if Greece were to leave the eurozone on a temporary basis.
Greece could also maintain two euro currencies, with the euro used for transactions and the government paying salaries and pensions in a separate Greek-style euro or even in IOUs.Greece could also maintain two euro currencies, with the euro used for transactions and the government paying salaries and pensions in a separate Greek-style euro or even in IOUs.
How easy is it to swap currencies?How easy is it to swap currencies?
What would Grexit look like?What would Grexit look like?
There is no precedent for a country to leave the euro and no-one knows how it might happen. But the ECB's decision to freeze liquidity to Greek banks felt like an initial step, as free flow of credit is a key tenet of the single currency.There is no precedent for a country to leave the euro and no-one knows how it might happen. But the ECB's decision to freeze liquidity to Greek banks felt like an initial step, as free flow of credit is a key tenet of the single currency.
The trouble is the damage already done to the banks. Tens of billions of euros have already been withdrawn from private and business accounts, and capital controls have left Greeks unable to withdraw large sums of cash.The trouble is the damage already done to the banks. Tens of billions of euros have already been withdrawn from private and business accounts, and capital controls have left Greeks unable to withdraw large sums of cash.
The risk is that a messy default could cause even more harm to the Greek economy.The risk is that a messy default could cause even more harm to the Greek economy.
"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 suffer instant devaluation and inflation. It could end up a pariah in the international markets for years, much like Argentina in 2002.Greece would suffer instant devaluation and inflation. It could end up a pariah in the international markets for years, much like Argentina in 2002.
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.
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.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.
Why are Greece's finances in such dire straits?Why are Greece's finances in such dire straits?
Could Grexit harm the rest of the eurozone?Could Grexit harm the rest of the eurozone?
The EU has worked hard to cordon off the banking difficulties of one member state from the other 27.The EU has worked hard to cordon off the banking difficulties of one member state from the other 27.
But the Greek debt crisis is widely seen as the biggest threat to the eurozone so far and there is concern that creating a precedent could cause irreparable damage to the single currency project.But the Greek debt crisis is widely seen as the biggest threat to the eurozone so far and there is concern that creating a precedent could cause irreparable damage to the single currency project.
A Grexit could spook global markets and turn speculators' attention to other fragile eurozone economies. It would leave the ECB with losses of €118bn lent to Greek banks and €20bn spent on buying up Greek government bonds.A Grexit could spook global markets and turn speculators' attention to other fragile eurozone economies. It would leave the ECB with losses of €118bn lent to Greek banks and €20bn 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.
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.
Greeks see cash run out in undeclared defaultGreeks see cash run out in undeclared default