Grexit is a Comin’

By on June 17, 2015

The Greek government is running out of time and money. If it fails to come to a deal with eurozone partners to secure the final tranche of its bailout, there is a real chance it could default on its loans.

That could push the Greek government towards leaving the single currency, otherwise known as Grexit.

The government in Athens has called on public sector bodies including hospitals to surrender any cash reserves they have.

The mayor of Greece’s second city, Thessaloniki, has already handed over millions.

For a populist, left-wing party like Syriza, it would be unthinkable to pay its debts to creditors ahead of funding pensions for 2.6 million Greeks and some 600,000 civil servant salaries. It has already moved to re-employ 4,000 civil servants whom the previous government got rid of.

If the government defaults on its loans, it risks cutting off its liquidity from the European Central Bank (ECB), which is keeping both the banks and the government afloat.

If Greece fails to pay the IMF on 30 June, it would still have four weeks’ grace to find the money. But if it misses its 20 July ECB payment, it would be very difficult to justify continuing to prop up the Greek banking system.

Deprived of liquidity, the Athens government would risk a “forced default”, 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Tens of billions of euros have already been withdrawn from private and business accounts and deposits could leave even faster.

To halt a run on the banks there might be a ban on withdrawals in the form of capital controls.

Greece would return to 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 of the London School of Economics.

Greeks want to stay in the single currency, but a forced default would likely push them out.
It would be a catastrophe that would lead to mass unemployment and the closure of Greek companies, according to Prof Dimitrios Kousenidis of Aristotle University of Thessaloniki.

“If there’s no deal, Grexit is inevitable,” says Prof Kousenidis. “There has to be a deal.”

Greece’s future in the euro looked so shaky that UK bookmaker William Hill some time ago stopped taking bets on the chances of a Grexit.

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