This is a first. In an interview with German newspaper FAZ on Friday 29 May, the Executive Director of the International Monetary Fund (IMF) Christine Lagarde told a Greek exit from the euro (the ” Grexit “) was a ” possibility “, that mean ” probably not “ the end of the euro. A statement that says a lot about the pressures behind the scenes of Athens.
Friday, May 29 in the morning, negotiations had still not reached between Greece and its creditors. If the government of Alexis Tsipras has increased the optimistic statements in recent days, Brussels and Washington will show more cautious. However, there is emergency. No quick agreement, the country will not affect the final tranche of 7.2 billion euros of European rescue plan.
Athens do so would probably not be able to pay the 1.6 billion euros repayable to the IMF in June. “Everyone hopes that this scenario will be avoided as uncertainties still would go up a notch,” , prevents Michalis Massourakis, chief economist of the Hellenic Federation of Enterprises (SEV).
“No immediate default layout”
According to several sources, Greece would still have enough to ensure payment of € 306 million expected on June 5 The question relates rather to the maturities of 12, 16 and 19 June “ No one knows exactly how much is left in the coffers of the Greek state” said Eric Dor, an economist at IESEG.
What would happen if Athens failed these repayments? “It would not trigger the immediate default of the country because the IMF is a separate creditor” says Frederik Ducrozet, economist at Credit Agricole CIB. According to the institution’s texts, the backward country has one month before the general manager of the fund notifies the fault to the board. Panama, Zimbabwe or Peru have already found themselves in this situation.
In this scenario, Athens and its European partners would have four more weeks to find a compromise before the big deadlines July and August (Greece will pay 4.4 billion euros in all to the European Central Bank). “In case of persistent non-payment of the IMF, corrective measures such as limiting access to the resources of the fund would intervene only three months after the date of first unpaid” , says Jesus Castillo, an economist at Natixis.
flexible enough Procedure
The procedure is quite flexible. With all the same size nuance: many emerging countries members of the institution consider that Greece has already received a leniency with which many of them have not been entitled. “ Lagarde should be careful not to put them at odds with” , says Dor. In fact, it has already rejected the possibility of merging all repayments in June in one, at the end of the month.
Moreover, the situation becomes explosive if disagreements between Athens and its partners were prolonged beyond June. Tensions then go up with the other creditors. Starting with the European Financial Stability Facility (EFSF), which lent a total 141.8 billion euros in Athens since 2010. If Greece did not reimburse the IMF on time, it can in theory demand full or partial repayment of loans already granted, or even cancel the following. “ This is a possibility, but it is unlikely that the EFSF go that far,” , nuance M. Dor.
The European Central Bank (ECB) would also be in a delicate situation. Since 4 February, she revises weekly emergency liquidity ceiling (ELA) that accorded to Greek banks. If the IMF says Greece in default, the institution might consider the collateral (the “Collateral”) that the Hellenic institutions bring him in exchange for this aid are now poor. It could even, in the most extreme and unlikely scenario, suspend ELA, which condemn banks asphyxiation.
In both cases, no doubt that the Greeks would rush to withdraw cash dispensers, accelerating deposit flight. “The government would probably be forced to implement capital controls to limit the bleeding,” , Holger Schmieding analysis, an economist at Berenberg Bank. For example by introducing ceilings for withdrawals and transfers abroad.
In theory, default and capital controls do not automatically lead to an exit from the euro zone. But to continue to pay civil servants, the state and municipalities may be tempted to print coupons, as did Argentina in 2002 after his failure. The use of vouchers were then progressively extended and authorized in shops, to become a parallel currency. Such a scenario would be in Greece, in fact, a form of Grexit
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