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Greek debt crisis: Is Grexit inevitable? Greek debt crisis: Is Grexit inevitable?
(1 day later)
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. Greek banks have been closed and strict limits placed on cash withdrawals as Greece's government is set to default on a debt repayment to the IMF on 30 June of €1.5bn ($1.7bn; £1.06bn).
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. Months of negotiations on a deal have collapsed and Prime Minister Alexis Tsipras has called a referendum for 5 July, asking Greeks to reject reform proposals from the IMF and EU, which he says are against European values.
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. The European Central Bank (ECB) has said it won't extend emergency funding for the banks and there is a growing risk of Greece lurching out of the single currency - which has come to be known as Grexit.
Is Greece about to default on its loans?Is Greece about to default on its loans?
It is now almost certain that Greece will default on its lMF debt repayment due on Tuesday 30 June. It is now almost certain that Greece will default on its lMF debt repayment on 30 June. That is also the day when the terms of its eurozone bailout run out.
That is also the day when the terms of its eurozone bailout run out. Greece's last cash injection from international creditors was way back in August 2014, so the final €7.2bn instalment from its two EU-IMF bailouts is now vital.
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.
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.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.
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.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.
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). As Greeks rushed to remove their savings, the ECB announced it would not extend its programme of keeping the banks running through an €89bn cash fund known as Emergency Liquidity Assistance (ELA).
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. Facing a cash crunch, the government has imposed capital controls limiting ATM withdrawals to €60 a day.
Greece's government, recommending a no-vote on creditors' reforms, is staring at default, sooner or later.
Are Greece's coffers really bare?Are Greece's coffers really bare?
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. Greece has said it cannot afford to make its June payments to the IMF. However, it has promised to pay €2.2bn due in public sector salaries, pensions and social security payments, also due on 30 June.
There seems little doubt that Greece's cash-flow is running on empty.
Public sector bodies - including hospitals - have already been asked to surrender any cash reserves they have.Public sector bodies - including hospitals - have already been asked to surrender any cash reserves they have.
The mayor of Greece's second city, Thessaloniki, handed over millions, but other towns and cities have refused to pay up.The mayor of Greece's second city, Thessaloniki, handed over millions, but other towns and cities have refused to pay up.
There seems little doubt that Greece's cash-flow is running on empty.
Does default mean leaving the eurozone?Does default mean leaving the eurozone?
There is no precedent for a country to leave the euro and no-one knows how it might happen. There is no precedent for a country to leave the euro and no-one knows how it might happen. But a No vote on 5 July would most likely push Greece towards the exit door.
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.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.
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. Even if Greece does default on its debt there is no legislation requiring its expulsion, as ECB Vice President Vitor Constancio said in April.
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. But the ECB's decision not to raise its emergency cash fund for Greek banks above €89bn already does make Grexit a greater prospect as it suspends the free flow of credit, a key tenet of the single currency. If the IMF were to declare Greece in default, Greek banks would be in even more trouble.
"If there's no deal, Grexit is inevitable," says Prof Dimitrios Kousenidis of Aristotle University of Thessaloniki. "There has to be a deal.""If there's no deal, Grexit is inevitable," says Prof Dimitrios Kousenidis of Aristotle University of Thessaloniki. "There has to be a deal."
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.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.
So what would Grexit look like?So what would Grexit look like?
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" on its debts, 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 capital controls have left Greeks unable to withdraw large sums of cash.
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. Relations between Mr Tsipras's government and the rest of the eurozone have all but broken down. 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 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.
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.
Unemployment, already steep, could climb further and Greek companies would close, Prof Kousenidis believes.Unemployment, already steep, could climb further and Greek companies would close, Prof Kousenidis believes.
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.
Could Greece default and remain in the euro?Could Greece default and remain in the euro?
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.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.
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. 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. A yes vote, in defiance of the government's recommendations, is possible.
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".
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. Capital controls are already in place to stop money flooding out of Greece. 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.
It would be less messy, but it would be a Grexit.It would be less messy, but it would be a Grexit.
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, which has already lent €118bn to Greek banks and has spent €20bn 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.
Greeks see cash run out in undeclared defaultGreeks see cash run out in undeclared default