This article is from the source 'bbc' and was first published or seen on . It last changed over 40 days ago and won't be checked again for changes.

You can find the current article at its original source at http://www.bbc.co.uk/news/world-europe-32332221

The article has changed 32 times. There is an RSS feed of changes available.

Version 19 Version 20
Greek debt crisis: Is Grexit inevitable? Greece debt crisis: Will 'No' vote lead to Grexit?
(5 days later)
Greek banks have been closed and strict limits placed on cash withdrawals after the prime minister called a 5 July referendum that some say could propel Greece out of the euro. More than 60% of Greeks have voted to reject eurozone cash-for-reform proposals, although Prime Minister Alexis Tsipras says it is not a mandate against Europe.
Months of negotiations on extending Greece's cash-for-reforms deal with the eurozone have collapsed, so the Greek bailout ran out on 30 June and Alexis Tsipras's government failed to make a key debt repayment to the IMF of €1.5bn ($1.7bn; £1.06bn). And yet several European leaders had warned that a "No" vote would mean a decision to leave the eurozone.
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. So what happens next? Will Greeks remain in the euro or lurch out of the single currency - which has come to be known as Grexit?
Why is Greece in danger of leaving the euro? What are the scenarios?
Although Prime Minister Alexis Tsipras disagrees, several European leaders have warned that a "No" vote in Sunday's referendum on a bailout deal with the eurozone would spell an end to Greece's participation in the single currency. There are at least three - but at the heart of each of them is what will happen to Greek banks and to the emergency cash funding provided by the European Central Bank (ECB).
Greece's last cash injection from international creditors was back in August 2014, so the Athens government desperately needs a new lifeline. Scenario one: Failed deal leads to Grexit
That lifeline is in trouble. The five-year eurozone bailout that had been keeping the Greek economy afloat expired on 30 June. And, on the same day, Greece became the first developed economy to miss an IMF payment. Technically, the IMF says Greece is "in arrears" and will not declare it in default for some time. This is now seen by many as the most likely option, even though Mr Tsipras was adamant that the result was "not a mandate of rupture with Europe, but a mandate that bolsters our negotiating strength to achieve a viable deal".
But it was the ECB's decision on 28 June to freeze its €89bn emergency cash programme of keeping the banks running on 28 June (Emergency Liquidity Assistance) that prompted Greece's capital controls and cash crisis. The problem is that many of his European partners see it as the end of the road and the closure of Greek banks requires a speedy decision.
Without a eurozone deal to resolve the impasse, its future in the euro is looking bleak. German ministers as well as the leaders of Italy and France all saw the vote as a referendum on staying in or out of the euro. Germany's Deputy Chancellor Sigmar Gabriel said on Sunday night that the Greek PM had "torn down the last bridges, across which Europe and Greece could move toward a compromise".
Lenders' proposals - key sticking points There will be a flurry of meetings: the ECB governing council on Monday, a summit of eurozone leaders and a meeting of eurozone finance ministers on Tuesday. But the mood is bleak. Eurogroup President Jeroen Dijsselbloem says it's now up to Greece to come up with the "difficult measures and reforms" needed and Polish PM Eva Kopacz summed it up as "probably a new stage towards (Athens) leaving the eurozone".
Source: European Commission document, 26 Jun 15 (pdf) Scenario two: Greek bank collapse leads to Grexit... or a deal
How bare are Greece's coffers? Overshadowing any political deal is the state of Greece's banks, which were shut on 29 June when the ECB froze their lifeline.
The Greek government promised a "No" vote would prompt the banks to reopen on Tuesday. But the ECB is unlikely to raise their emergency cash support (Emergency Liquidity Assistance) from €89bn (£63bn; $98bn) and the banks' survival is being numbered in days. One potential option for the banks would be to reopen with a parallel currency before the revival of Greece's former currency, the drachma.
Peston: Greek banks days from running out of cash
The threat of Greece's economy going into freefall could persuade the EU to recapitalise the banking system. But that would have knock-on political consequences for other eurozone countries such as Spain, where the political mainstream is facing a stiff electoral challenge from anti-austerity parties.
"Rejection of reforms by Greece cannot mean that they will get the money more easily," tweeted Slovak Finance Minister Peter Kazimir.
And should the eurozone continue what looks like throwing good money after bad? Greece's biggest creditor, the eurozone rescue fund EFSF, has already threatened to call in the €130.9bn owed by the Athens government, because of its failure to pay its June debt repayment to the IMF.
Scenario three: EU leaders agree deal and avert bank collapse
It appears unlikely, but the Greek Prime Minister has provided the framework for a deal and the reforms he agreed to days before the referendum were not a far cry from what was being demanded by Greece's eurozone and IMF creditors.
The difference was that he wanted a third bailout worth €29.1bn, not the final slice of the second that was on offer, and four times its size at that.
His decision to dispense with Finance Minister Yanis Varoufakis, whose colourful rhetoric infuriated eurozone colleagues, suggests he is taking a more diplomatic approach.
It is not just money that Mr Tsipras will be after in return for negotiated economic reforms. He will come armed with a report from the IMF, released just three days before the referendum, which said Greece needed significant debt relief, as well as closer to €50bn over three years.
For the banks to be recapitalised, Greece would need access to the eurozone's permanent bailout fund, the European Stability Mechanism (ESM). At this stage it is hard to imagine that being given.
Did Tsipras change course?
Why are Greece's finances in such dire straits?
Since 2010, the Athens government has been reliant on two EU-IMF bailouts totalling €240bn. Greece's last cash injection from international creditors was back in August 2014, and when the eurozone agreement ran out on 30 June, Mr Tsipras's government also failed to make a key debt repayment to the IMF of €1.5bn.
Technically, the IMF says Greece is "in arrears" but the EFSF says that constitutes a default.
Greece's debts now total more than €300bn - around 180% of its GDP.
Not only are the banks shut, Greeks are limited to €60 cash withdrawals per day.Not only are the banks shut, Greeks are limited to €60 cash withdrawals per day.
Although the government has stopped paying its debts, it has to find €2.2bn a month in public sector salaries, pensions and social security, and the bank restrictions mean its tax revenues are drying up.Although the government has stopped paying its debts, it has to find €2.2bn a month in public sector salaries, pensions and social security, and the bank restrictions mean its tax revenues are drying up.
Credit rating agencies have lowered the banks to near junk status. Public sector bodies - including hospitals - have already been asked to surrender any cash reserves they have.Credit rating agencies have lowered the banks to near junk status. 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.
What are the restrictions imposed in Greece?
What are capital controls?What are capital controls?
So is Grexit a realistic prospect? So how would Grexit work?
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. 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.
Greek Finance Minister Yanis Varoufakis is adamant there is no provision for any country to leave the euro. He insists the 5 July referendum is not about Grexit but about sending a powerful message on the need for restructuring Greece's mammoth debt, now totalling more than €300bn - around 180% of its GDP. 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.
Even if Greece does default on its debt there is no legislation requiring its expulsion, as ECB Vice President Vitor Constancio said in April. The risk is that a messy default could cause even more harm to the Greek economy.
But several European leaders - Italy's Matteo Renzi, Francois Hollande of France and Germany's vice chancellor Sigmar Gabriel - have said they see the referendum as a choice between staying in the eurozone or leaving it.
The ECB's decision not to raise its emergency cash fund also represents a powerful message, by suspending 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 Greece failed to reach a deal by 20 July on its €3.5bn repayment to the ECB, it would be very difficult for the Frankfurt-based bank to justify propping up the Greek banking system at all.
Will the referendum decide Greece's future in the euro?
Whatever Greece's Syriza-led government says, a "No" vote would be seen by Europe's leaders as a rejection of their terms for staying in the single currency.
Alexis Tsipras believes that they would stop short of kicking Greece out as the "cost is immense".
But a "Yes" vote would likely prompt his resignation and spell political turmoil, months after Syriza came to power with an anti-austerity mandate. It would however be a signal to the rest of the eurozone that Greece wanted to stay part of it.
It was perhaps summed up best by the Italian prime minister.
Why a bailout referendum?
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.
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 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 suffer instant devaluation and inflation. 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.
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 remain in the euro after a 'No' vote? Potentially the best option would be for Greece to pursue a "managed default", where a parallel currency could operate with civil servants paid with IOUs and eurozone institutions would stave off a fully-fledged crisis.
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 some economists, potentially the best option would be for Greece to pursue a "managed default".
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.
Greece would struggle to find creditors outside Europe - SchaeubleGreece would struggle to find creditors outside Europe - Schaeuble
Is there a risk of contagion? Could this instability spread across Europe?
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 Greek debt crisis is widely seen as the biggest threat to the eurozone so far.
But the IMF has warned that "risks and vulnerabilities remain" and the greater the talk of Grexit, the more nervous the markets become. The IMF has warned that "risks and vulnerabilities remain" and a sharp fall on markets worldwide is widely expected.
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. Grexit could 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.
Spanish Prime Minister Mariano Rajoy recently said he was not worried by contagion from Greece. He has now changed his view. Spanish Prime Minister Mariano Rajoy said last week that Greek exit from the euro would be a "negative message that euro membership is reversible".
"What would happen if Greece came out of the euro? There would be a negative message that euro membership is reversible," he said.
Greeks see cash run out in undeclared defaultGreeks see cash run out in undeclared default