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Greece debt crisis: Can Grexit be avoided? Greece debt crisis: Has Grexit been avoided?
(about 2 hours later)
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.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.
The deal on the table is for up to €86bn (£61bn) of financing for Greece over three years.The deal on the table is for up to €86bn (£61bn) of financing for Greece over three years.
But short-term financing is vital to keep the banks going and pay the government's bills and Greek MPs have been given an ultimatum to rush through a slew of reforms.But short-term financing is vital to keep the banks going and pay the government's bills and Greek MPs have been given an ultimatum to rush through a slew of reforms.
If the bailout deal fails 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
OutOut
Temporary GrexitTemporary Grexit
Scenario one: Greece stays inScenario one: Greece stays in
Eurozone leaders have signed up to a deal for Greece to stay in the euro, but it calls for more Greek austerity, and it will be a huge task.Eurozone leaders have signed up to a deal for Greece to stay in the euro, but it calls for more Greek austerity, and it will be a huge task.
First the Greek government and parliament will have to agree the eurozone's toughened package of reforms, days after MPs ratified a package put to the eurozone by Prime Minister Alexis Tsipras.First the Greek government and parliament will have to agree the eurozone's 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 will have to rely on opposition parties to get any new eurozone reforms through.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 will 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 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.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.
Short-term bridge financing is needed 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.Short-term bridge financing is needed 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 eurozoneScenario two: Greece leaves eurozone
Despite the eurozone deal, there are so many pitfalls over the coming days that Grexit remains a realistic option.Despite the eurozone deal, there are so many pitfalls over the coming days 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 the bailout terms being agreed and approval from parliaments elsewhere.
Greece's financial system has ground to a halt and urgently needs temporary financing to prevent a bank collapse.Greece's financial system has ground to a halt and urgently needs temporary financing to prevent a bank collapse.
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 and expects a €3.5bn debt repayment on 20 July.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 and expects a €3.5bn debt repayment on 20 July.
Falling out of the eurozone by accident now seems unlikely, but much still rests on the haggling over the terms of the third bailout. Falling out of the eurozone by accident now seems unlikely, but much still rests on the haggling to be done across the eurozone.
What are capital controls?What are capital controls?
Scenario three: Greece leaves euro temporarilyScenario three: Greece leaves euro temporarily
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, who ultimately rejected it.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, who ultimately rejected it.
And yet, if the third bailout falls through, it might become a credible option.And yet, if the third bailout falls through, it might become a credible option.
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 argued that "sufficient debt restructuring" was not possible within the eurozone, although it does appear to be part of the Brussels agreement.The German proposal argued that "sufficient debt restructuring" was not possible within the eurozone, although it does appear to be part of the Brussels agreement.
The "time-out" solution would include technical and humanitarian assistance but not debt relief, which the International Monetary Fund believes is necessary.The "time-out" solution would include technical and humanitarian assistance but not debt relief, which the International Monetary Fund believes is necessary.
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.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.
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 problem 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 problem 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