Greece Teeters on the Edge of Default
Wealthy Greeks are scrambling to secure their money by transferring it to overseas banks or hiding cash in their homes.
But everyone else is simply waiting… Many Greeks have nothing left to lose at this point.
The debacle that is Greece’s debt and its impending default is coming to a head this week, as Eurozone finance ministers and heads of government gather in Brussels to decide the country’s fate.
The leaders participated in what was supposed to be an emergency summit on Monday evening to try to cobble together a deal that would bail out Greece and prevent it from defaulting on its debts – due on June 30 to the International Monetary Fund.
Initially, the goal was to establish a solid reform spending plan for Greece. This would unlock an injection of 7.2 billion euros to keep Greece’s central bank running.
But hopes of a deal were quickly squashed.
The Prime Minister of Greece, Alexis Tsipras, submitted new reform proposals on Sunday evening. But Eurozone finance ministers weren’t satisfied with the plans. One of the major sticking points continues to be the unsustainably high benefits Greece provides to its citizens.
Still, something must happen, and soon.
Plans A, B, and C
If an agreement isn’t reached, extreme measures could result.
Capital controls would be implemented that would limit withdrawals and prevent a run on Greek banks.
If there was a run on the banks, the governing council that has been keeping Greek banks afloat with emergency loans could declare them insolvent and stop assistance. Without these injections of cash, the country’s banks would completely collapse.
The only way to restart the banking system would be to create a new Greek central bank with a new currency – a.k.a the Grexit.
Movement in this direction has already started, too.
Numbers as high as 1.6 billion euros were reported to have been withdrawn on Monday alone. With even more leaving over this past weekend.
Capital control would slow this inevitable process down, providing more time to negotiate.
If the EU and Greece are able to come to an agreement, Tsipras will use the bailout money to make the IMF payment. The IMF would then extend the lending program for a third time, allowing Greece to continue functioning.
If July 1 is reached without an agreement, Greece will enter what the European Central Bank President Mario Draghi dubbed “uncharted territory.” The country’s banking system would be slowly suffocated by capital controls.
Some officials even believe that this outcome could cause so much anger that Tsipras’ government would be overthrown.
However the chips fall, a Greek default would affect economies around the world. Something many countries, especially the United States, don’t want to experience.
U.S. Treasury Secretary Jack Lew called Eurogroup President Jeroen Dijsselbloem, urging him to find a path to a deal.
And last week Chairwoman of the Federal Reserve Janet Yellen warned that Greece leaving the Eurozone could affect the U.S. economy’s fragile growth and disrupt financial markets internationally.
The only option for our readers is to wait and hope for an agreement.
Follow the Financial Times live feed of the situation here.