Tuesday 27 September 2016

7 scenarios for Greece in the coming days

Published 28/06/2015 | 19:51

People line up to withdraw cash from an ATM outside a Eurobank branch in Athens, Greece June 28, 2015. Greece's finance minister denied saying the government preferred the imposition of capital controls, saying the move would be incompatible with the concept of a monetary union, a statement from his ministry said on Sunday. REUTERS/Yannis Behrakis
People line up to withdraw cash from an ATM outside a Eurobank branch in Athens, Greece June 28, 2015. Greece's finance minister denied saying the government preferred the imposition of capital controls, saying the move would be incompatible with the concept of a monetary union, a statement from his ministry said on Sunday. REUTERS/Yannis Behrakis
People line up to withdraw cash from an ATM outside a Eurobank branch in Athens, Greece June 28, 2015. The Greek government will on Sunday night consider imposing capital controls and closing the country's banks on Monday, Greek Finance Minister Yanis Varoufakis has told BBC Radio. REUTERS/Yannis Behrakis

The breakdown of talks between Greece and its creditors on extending euro zone bailout funding beyond Tuesday means Athens may fail to make €1.6 billion debt repayment to the IMF that day.

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Parliament has backed the leftist government's move to hold a referendum next Sunday on the last creditors offer to release 15.5 billion euros for five months in return for tax increases and spending cuts. The government has urged voters to reject it.

Former Greek conservative Prime Minister Antonis Samaras (L), leader of the opposition New Democracy party, shakes hands during a meeting with Greek President Prokopis Pavlopoulos (R) at the Presidential Palace in Athens, Greece June 28, 2015. Europe's grand project to bind its nations into an unbreakable union by means of a common currency lurched into uncharted waters after EU governments refused funding to save Greece from defaulting on its debts. REUTERS/Alkis Konstantinidis
Former Greek conservative Prime Minister Antonis Samaras (L), leader of the opposition New Democracy party, shakes hands during a meeting with Greek President Prokopis Pavlopoulos (R) at the Presidential Palace in Athens, Greece June 28, 2015. Europe's grand project to bind its nations into an unbreakable union by means of a common currency lurched into uncharted waters after EU governments refused funding to save Greece from defaulting on its debts. REUTERS/Alkis Konstantinidis
Greek President Prokopis Pavlopoulos waits before a meeting with former Greek conservative Prime Minister Antonis Samaras, leader of the opposition New Democracy party, at the Presidential Palace in Athens, Greece June 28, 2015. Europe's grand project to bind its nations into an unbreakable union by means of a common currency lurched into uncharted waters after EU governments refused funding to save Greece from defaulting on its debts. REUTERS/Alkis Konstantinidis

Political twists, in Athens and among EU leaders reluctant to see a potentially damaging rift in bloc, could yet change the outlook for a week which ministers have described as "uncharted territory". But here are a number of the elements involved:

1 CAPITAL CONTROLS

Greece said it may impose capital controls and keep its banks shut on Monday. Greek Finance Minister Yanis Varoufakis told the BBC that he would consider capital controls, working with the European Central Bank and Greek authorities overnight. But the finance ministry later issued a statement saying capital controls were not the government's preference.

Long lines formed outside many ATMs on Sunday, including some of 40 to 50 people outside some in central Athens, while the German foreign ministry said tourists heading to Greece should take plenty of cash to avoid possible problems with local banks and some tourists said they were joining the ATM queues.

Tourists make their way past a European Union flag and a Greek national flag at the seaside of the island of Paros, Greece June 26, 2015. A rise in consumer taxes on Greek islands' goods and services is one of the sacrifices creditors are seeking from Athens to unlock bailout funds that will allow Greece to remain in the euro. The tax hike is one of the sticking points thwarting a deal and prompting Prime Minister Alexis Tsipras to call a July 5 referendum on the bailout terms. Yet even before the vote, Greece is likely to default on a debt payment, setting off a financial crisis that could damage an upcoming tourist season expected to be one of the most vibrant in years. Picture taken June 26, 2015. REUTERS/Matthias Williams
Tourists make their way past a European Union flag and a Greek national flag at the seaside of the island of Paros, Greece June 26, 2015. A rise in consumer taxes on Greek islands' goods and services is one of the sacrifices creditors are seeking from Athens to unlock bailout funds that will allow Greece to remain in the euro. The tax hike is one of the sticking points thwarting a deal and prompting Prime Minister Alexis Tsipras to call a July 5 referendum on the bailout terms. Yet even before the vote, Greece is likely to default on a debt payment, setting off a financial crisis that could damage an upcoming tourist season expected to be one of the most vibrant in years. Picture taken June 26, 2015. REUTERS/Matthias Williams
A young girl hugs her mother while lining up with other people to withdraw cash from an ATM outside a National Bank branch in Athens, Greece June 28, 2015. Greece said it may impose capital controls and keep its banks shut on Monday after creditors refused to extend the country's bailout and savers queued to withdraw cash, taking Athens' standoff with the European Union and the International Monetary Fund to a dangerous new level. REUTERS/Alkis Konstantinidis

2 WHAT HAPPENS AFTER TUESDAY?

Greece may miss its payment to the IMF, but some euro zone officials are hoping the Washington-based lender will not immediately declare Athens in default, but rather in arrears.

That could allow the euro zone and the European Central Bank to argue that Greece is not yet technically in default, avoiding the prospect that other lenders demand to be paid back and giving the European Central Bank the space to continue funding Greek banks. IMF head Christine Lagarde urged a "balanced approach" to the crisis in a statement on Sunday.

3 ECB LIFELINE

A man reads a newspaper while sitting in a taverna at the island of Paros, Greece June 26, 2015. A rise in consumer taxes on Greek islands' goods and services is one of the sacrifices creditors are seeking from Athens to unlock bailout funds that will allow Greece to remain in the euro. The tax hike is one of the sticking points thwarting a deal and prompting Prime Minister Alexis Tsipras to call a July 5 referendum on the bailout terms. Yet even before the vote, Greece is likely to default on a debt payment, setting off a financial crisis that could damage an upcoming tourist season expected to be one of the most vibrant in years. Picture taken June 26, 2015. REUTERS/Matthias Williams
A man reads a newspaper while sitting in a taverna at the island of Paros, Greece June 26, 2015. A rise in consumer taxes on Greek islands' goods and services is one of the sacrifices creditors are seeking from Athens to unlock bailout funds that will allow Greece to remain in the euro. The tax hike is one of the sticking points thwarting a deal and prompting Prime Minister Alexis Tsipras to call a July 5 referendum on the bailout terms. Yet even before the vote, Greece is likely to default on a debt payment, setting off a financial crisis that could damage an upcoming tourist season expected to be one of the most vibrant in years. Picture taken June 26, 2015. REUTERS/Matthias Williams

The European Central Bank on Sunday decided to continue supporting the Greek banking system with its emergency liquidity assistance (ELA) but default may change that picture.

ECB officials have been signalling that they would continue to support Greek banks as long as they have enough collateral.

Greek Finance Minister Yanis Varoufakis leaves on his motorbike after a meeting at the office of Prime Minister Alexis Tsipras in Maximos Mansion in Athens, Greece June 28, 2015. Greece said it may impose capital controls and keep its banks shut on Monday after creditors refused to extend the country's bailout and savers queued to withdraw cash, taking Athens' standoff with the European Union and the International Monetary Fund to a dangerous new level. REUTERS/Marko Djurica
Greek Finance Minister Yanis Varoufakis leaves on his motorbike after a meeting at the office of Prime Minister Alexis Tsipras in Maximos Mansion in Athens, Greece June 28, 2015. Greece said it may impose capital controls and keep its banks shut on Monday after creditors refused to extend the country's bailout and savers queued to withdraw cash, taking Athens' standoff with the European Union and the International Monetary Fund to a dangerous new level. REUTERS/Marko Djurica
Greek Finance Minister Yanis Varoufakis leaves after a meeting at the office of Prime Minister Alexis Tsipras in Maximos Mansion in Athens, Greece June 28, 2015. Greece said it may impose capital controls and keep its banks shut on Monday after creditors refused to extend the country's bailout and savers queued to withdraw cash, taking Athens' standoff with the European Union and the International Monetary Fund to a dangerous new level. REUTERS/Marko Djurica

However, a clear default on the IMF and no prospect of financing from the euro zone through a financing-for-reforms deal may mean that the value of Greek collateral will fall dramatically, ending the ECB's support line.

4 REPAYMENT ON ECB-HELD BONDS

The European Central Bank may also choose to wait before withdrawing its support until July 20, when Greece has to redeem maturing Greek bonds worth 3.5 billion euros held by the ECB.

If Greece does not repay what it owes then, and it is unlikely to find the money without euro zone support, it would be hard for the ECB to provide Greek banks with money.

5 IOUs AND SLOW EXIT FROM EURO

Without the support of the ECB, the Greek banking sector will likely collapse and Greece will have to introduce a parallel currency in the form of some debt instrument like IOUs to cover the government's domestic obligations.

This parallel currency to the euro could become the new Greek currency. It is unclear how long Greece could or would be willing to have two currencies, one of which -- the IOUs -- would very quickly undergo a major devaluation.

6 REFERENDUM ON JULY 5

The Greeks may vote in the referendum on July 5 amid cash shortages, capital controls and possible social unrest. The Greek government has steered public opinion towards voting "no" to the creditors' demands, which some Greeks and euro zone politicians say is a vote on leaving the euro.

7 IN CASE OF A GREEK 'YES' VOTE FOR REFORMS

The European Commission, the EU executive, has published the creditors proposals of June 26. If Greece votes in the referendum to agree to the creditors' conditions for further financial help, the government would have to ask for and negotiate a third bailout programme with international lenders.

Such negotiations would probably take many weeks or even months because they would be even more difficult than those that broke down this weekend, officials said.

Reuters

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