Why Greece's spillover across euro area will probably be contained this time

[greengiraffe]

Jun 17 2015 at 7:39 AM Updated Jun 17 2015 at 8:43 AM

What happens if Greece defaults?

Talks between Greek Prime Minister Alexis Tsipras and creditors have broken down. Simon Dawson


by James Chessell
The risk of a Greek default is growing, with Prime Minister Alexis Tsipras dashing any hopes of quick resolution to bailout negotiations overnight by accusing the International Monetary Fund of "criminal responsibility" for the Greek debt crisis.

So what are the options for Greece and its creditors if a deal to unlock €7.2 billion ($10.5 billion) in bailout funds can't be reached?

Here are some the key questions answered:

What is the status of the negotiations?

The chances of Greece and its creditors reaching a deal that unlocks €7.2 billion ($10.5 billion) in desperately needed bailout funds before the end of the month grow slimmer by the minute.

According to Finnish Prime Minister Juha Sipila, it would take a "miracle" for the deadlock to be broken in the next two weeks.

This is a significant problem.

Greece cannot pay its own bills and is effectively prevented from accessing capital markets.

The populist Syriza government elected in January has so far scrounged together enough cash - sometimes by raiding public institutions such as universities or municipalities - in order to make critical payments.

But most analysts believe the government won't be able to cover a half-monthly wage instalment later this week as well as a €1.5 billion loan repayment due to the International Monetary Fund at the end of the month without access to the bailout funds.

With negotiations between Greece and its three bailout monitors - the IMF, European Commission and European Central Bank - breaking down over the weekend, both sides are preparing for the real possibility of a default and even an exit from the eurozone altogether.

Greek prime minister shows Alexis Tsipras added to this growing sense of nervousness on Tuesday by accusing the IMF of "criminal responsibility" for the debt crisis in a firey speech to parliament.


What are the sticking points?

The creditors want Athens to sign off on a list of economic reforms aimed at realising around €2 billion in annual savings before the bailout funds are released.

At the heart of this are projections for the primary budget surplus - a measure that does not include interest payments - needed to reduce Greece's debt, which stands at around 180 per cent of GDP.

The targets offered up by the IMF, and mostly endorsed by Europe, are actually quite close to those proposed by Athens.

The disagreement is over how they are best achieved.

The left-wing Syriza Party secured its historic victory by promising to fight German-led austerity measures imposed as part of the two bailout packages Greece has received since the financial crisis.

Consequently, demands by the creditors to cut public service pensions, which are among the most generous in Europe, liberalise labour laws in favour of employers and increase sales taxes on sensitive items such as electricity are being resisted.

Instead, Syriza has offered up measures such as license fees for television networks and a crackdown on fuel smuggling, which the creditors do not believe are credible.

The challenges for boths sides are not just economic.

Tsipras must curb any temptation to be overly-pragmatic because the hardliners within his own party will destroy him politically if Syriza is seen to be too close to Germany.

The result could be another election.

The creditors are under pressure from countries that have gone through austerity - such as Ireland and Spain - not to cut corners when it comes to Greece.

Nevertheless, some observers believe Tsipras may be more willing to swallow contentious measures such as pension reform in exchange for debt relief (either in the form or write offs or a relaxed repayment schedule).


What happens next?

There are three broad scenarios.

1. One or both sides could cave in and agree to a deal.

Even IMF chief economist Oliver Blanchard believes this is possible if Greece agrees to tackle difficult issue such as sales tax reform and European creditors agree to "significant additional financing" and debt relief "through a long rescheduling of debt payments at low interest rates".

The problem is both sides have effectively run before the June 30 deadline.

2. Athens defaults on its IMF payment.

This would be an unprecedented move for a developed nation with Greece joining the likes of Zambia, Peru and Zimbabwe on the list of countries not have paid the IMF back on time.

In theory, debtors have a 30-day "grace period" with the IMF before the executive board is formally notified of the late payment, giving both sides more time to continue negotiations.

This technical default could jolt the creditors into a more consiliatory frame of mind.

But the bottom line is that without a deal, Greece's debts would begin piling up - another €6.6 billion is due to the ECB in July and August - with no means to pay them back.

A fully-fledged default and exit from the eurozone becomes a possibility.

3. Both sides agree on a temporary fix.

This scenario remains a popular pick among strategists.

"In the creditors' case, they stand to lose a lot of money from Greece's failure to pay, not to mention the risks of market stress," notes Aberdeen Asset Management.

"Instead, it would be easier for all at this stage to claim that some progress had been made in the talks, and that some funds would be released while negotiations continue."

This is makes sense but once again there is precious little time left to strike even a stop-gap deal.

Does a default lead to a 'Grexit'?

Not necessarily but it does make it more likely.

If Greece does not pay back the IMF it is considered to be in default to the rest of the eurozone.

But there is no EU rule that says a nation must exit the eurozone it it cannot pay back its debt.

Analysts such as ABN Amro's Nick Kounis argue that it is entirely possible Greece does not reach an agreement by the end of the month, but does so some time thereafter.

"To default 'inside the eurozone' one only needs to devise another way to keep the banking system afloat," argues economic commentator Wolfgang Münchau. "If someone could concoct a brilliant answer, there would be no need for Grexit." No pressure.

How do capital controls fit into all this?

It is likely capital controls to prevent a run on Greek banks would be introduced after default.

These could take the form of limits on cash withdrawals, foreign transfer restrictions, physical currency limits at borders and even a 'bank holiday'.

Such measures are tough on ordinary citizens but have been shown to support the banking system.

Capital controls were introduced in Cyprus, but that was with the support of the government.

With large amounts of money already withdrawn from Greek banks, the Syriza government may have little choice but to adopt similar measures.


"Capital controls would essentially buy time for a more serious resolution to the Greek crisis - namely a new government which can deliver reforms which might placate the creditors - so more talks and elections would follow," Guy Foster, head of research at London financial firm Brewin Dolphin, suggests.

Does it matter if Greece leaves the eurozone?

This is the big questions facing policy-makers around the world.

Those that argue a "Grexit" would be devastating make the obvious point that the short-term consequences for Greeks would include the aforementioned run on banks, a (new) drachma that plummets in value and the distinct possibility of a failed state emerging within Europe.

Then there are the broader geopolitical consequences.

One of the reasons the likes of German chancellor Angela Merkel are keen to resolve the crisis is that it comes at a particularly vulnerable moment for the EU.

A Grexit could cause financial havoc in vulnerable countries such as Portugal and even trigger further departures, with countries such as Spain facing populist anti-austerity movements of their own.

A fracturing of the European project at a time when Russia is flexing its military muscles is a concern for most European leaders.

Yet there are others who argue that a devalued currency combined with sound economic reforms and the maintenance of an open economy could improve Greek competitiveness in the long run.

Indeed, about three quarters of Greek GDP is domestic with most of the remaining quarter coming from from tourism, an obvious beneficiary from a cheaper currency.

The optimists reckon the eurozone is better able to absorb a Greek shock today than it was in 2010 when the second bailout was put in place.

Private firms have almost no exposure to Greece while the ECB's quantitative easing program is supporting bond and sharemarkets as well as keeping the euro weak in a boost for exporters.

[greengiraffe]

Jun 17 2015 at 9:20 AM Updated Jun 17 2015 at 9:20 AM
Greek companies storing cash abroad ahead of capital controls

More than €100 billion of deposits held by businesses and households in Greece have left its banking system since the end of 2009. Reuters
by Maria Petrakis
George Alevizos knows what it's like to live with capital controls.

The finance manager at Fourlis Holdings, which has the franchise for Ikea furniture stores in Greece, Cyprus and Bulgaria, saw the company's Cypriot sales fall about 30 per cent in the three months immediately after that country's rescue in March 2013.

Now as Greece and its creditors head for a showdown that's raising the spectre of the country's exit from the euro or the imposition of capital controls, crisis-hardened company executives, although nervous, say the drawn-out turbulence has prepared them for the worst.

"We have faced this kind of issue with the operation in Cyprus," Alevizos said in an interview. "Short-term, however, there is always severe turbulence."

Since Greece sparked the euro area debt crisis in 2009, companies have been living with banks unable to lend, an economy struggling to emerge from recession and the shadow of uncertainty over the country's future in the euro area. The tumultuous times have taught them valuable lessons - from keeping their cash overseas to developing export markets, executives said.

That preparation may be put to the test as Greece and its creditors fail to strike a deal on reforms Prime Minister Alexis Tsipras has to deliver to get as much as €7.2 billion from the country's existing bailout funds. With the bailout program expiring at the end of the month, time may be running out. That could mean capital controls like those in Cyprus in 2013, the first in a euro country. Companies have been quietly preparing for that possibility.

Take Sarantis, a distributor of products ranging from Estee Lauder cosmetics to insect repellents. The company's cash has been kept outside Greece since the Cyprus crisis. Sarantis would probably see a fall in sales as the cost of imported goods rise if there are capital restrictions or an exit from the euro, Kostas Rozakeos, the company's chief financial officer, said in a call with analysts.

The upside to an exit from the euro would be that the company would have lower production costs because its cash is abroad and will remain in foreign currency, he said.

"At the end of the day, Sarantis will have benefits," he said. "I don't wish that as a citizen, as a Greek citizen, but talking about this as a businessman, I can see opportunities."

Sarantis will be the big guy on the block as smaller, weaker rivals succumb to the Greek cash crunch, he said.

More than €100 billion of deposits held by businesses and households in Greece have left its banking system since the end of 2009, with losses deepening since the beginning of this year, when the anti-austerity Tsipras government came to power.

The stalemate in talks between Greece and creditors over the last few months prompted JPMorgan analysts to write on June 1 that the impasse makes capital controls more likely "to nail down bank deposits, preventing portfolio type flows."

In some ways, the controls may be too little too late. Companies, reading the writing on the wall, have kept funds outside Greece when they could.

Titan Cement Co., which rode out the financial crisis in the US in 2008 and a revolution in 2011 in Egypt, has most of its cash reserves overseas. Cyprus-style controls may be a possibility for Greece, although an exit from the euro seems unlikely, chief executive officer Dimitrios Papalexopoulos told analysts on a call last month.

"We are net exporters, so we will have excess foreign currency rather than a shortage," he said. International operations of the Athens-based cement maker are self-sufficient and the company has credit facilities from foreign, not Greek, banks, he said.

Of Titan's cash reserves of €138 million only €12 million are in Greece. About €70 million are with holding companies and European banks outside the country.

Dixon Carphone, which owns the Kotsvolos appliance chain, has had contingency plans in place for a Greek euro exit since at least May 2012, when Tsipras's Syriza party emerged on the political scene as a potential contender to run the country.

"We have plans in terms of how our stores will close and reopen, we have plans in terms of how we manage consumer credit arrangements and we have a plan in terms of how we make sure that we get stores open and trading as quickly as possible," chief executive officer Sebastian James said at the time.

He repeated this month that the events may present an opportunity to gain market share.

Hellas Direct, a Cyprus-based car insurer operating in Greece in which US billionaire Daniel Loeb's Third Point Hellenic Recovery Fund has a 20 per cent stake, has always kept cash out of Greece and Cyprus.

In Greece, "we only keep operational cash locally and sweep up capital on a weekly basis," said Alexis Pantazis, co- founder of the company. "Even in the case of capital controls being imposed, we would have sufficient liquidity to continue as is."

Bloomberg

[greengiraffe]

OPINION Jun 19 2015 at 8:32 AM Updated 1 hr ago

Grexit fears stir talk of 'deep recession'

by Karen Maley
Greece lurched closer to default overnight, after a meeting of eurozone finance meetings failed to reach a deal at crunch talks in Luxembourg, with hopes for a compromise deal now resting on a Monday's hastily convened emergency meeting of eurozone leaders.

Much to the annoyance of other participants, Greek finance minister Yanis Varoufakis turned up at last night's meeting with a five-page document containing vague commitments but which focused on the need to restructure the country's huge debt burden.

In a meeting lasting less than an hour and a half, eurozone finance ministers made it clear that at this stage they did not plan to extend Greece's bailout program.

News agency Reuters quoted unnamed officials as saying that a senior European Central Bank executive told the meeting last night that it was not sure if Greek banks, which have been suffering large daily deposit outflows, would be able to open on Monday.

Finance Minister Yanis Varoufakis turned up at last night's meeting in Luxembourg with a five-page document containing vague commitments.
Finance Minister Yanis Varoufakis turned up at last night's meeting in Luxembourg with a five-page document containing vague commitments.
The run on Greek banks has accelerated this week, with Greeks withdrawing an estimated €2 billion ($2.9 billion) between Monday and Wednesday.

After the meeting, a visibly annoyed Christine Lagarde, head of the International Monetary Fund, called for a dialogue "with adults in the room". She added that the IMF was open to continuing negotiations, saying although IMF team had been withdrawn from Brussels, it could return at any time.

Greece is trying to unblock the last €7.2 billion in desperately needed bailout funds and avoid default. Without an agreement, the country, whose coffers are empty and which is due to make some large repayments (€1.6 billion to the IMF on 30 June, a further €3.5 billion to the European Central Bank on 20 July) will default, which could force a Greece exit – or Grexit – from the euro zone.

The central bank of Greece warned on Wednesday that failure to reach a deal with the country's international creditors – the IMF, the European Union and the European Central Bank – would "mark the beginning course that would lead initially to a Greek default and ultimately to the country's exit from the euro area and, most likely, from the European Union."

This it warned would result "acute exchange rate crisis" that "would send inflation soaring", and would be followed by a "deep recession."

But the radical leftist government of Alexis Tsipras, which came to power in January pledging to end austerity, is refusing to bow to the demands of the country's creditor. And, as evidenced by the demonstration outside the Greek parliament overnight, his defiant stance still enjoys domestic support.

In contrast, support for Greece within the eurozone is rapidly fading.

In a strange twist of fate, German chancellor, Angela Merkel, who was demonised in Greece during the election campaign, has emerged as one of the country's major advocates, so desperate is she to avoid a Grexit.

But Merkel's position is not easy. Public opinion in Germany is hardening against Greece, and it is also far from certain that she will persuade the Bundestag to approve fresh concessions for Athens.

In addition, the group of eurozone countries that were most affected during the region's debt crisis – Spain, Portugal, Ireland and Cyprus – and were forced to undergo painful austerity programs, are extremely disgruntled at the idea that Athens might receive much more favourable treatment.

Even France and Italy, which seemed the most sympathetic to the Tsipras government when it first won office, are losing their enthusiasm.

Rome lost patience after Greek finance minister Yanis Varoufakis declared that Italy's debt burden was unsustainable. This was unwelcome to an Italian government that has pushed ahead with difficult labour market reforms, and which is seeing the first green shoots of recovery after three years of recession.

And Paris, which for the past five months has worked hard to find a compromise between Athens and the more hardline of the creditors, has adopted a harsher stance in the past few weeks.

Meanwhile, smaller eurozone countries have even less sympathy for Greece's plight. Slovakia, where salaries and pensions are lower than in Greece, questions why its citizens should have to pay to support Greece.

And Finland, which is preparing to make savage cuts in public spending and where the anti-European True Finns are part of the coalition government, is unlikely to show much tolerance for the demands made by Athens.

[CityFarmer]

The impact from Grexit, is still pretty unpredictable...

Euro zone sets emergency summit on Greece as money flees

ATHENS/LUXEMBOURG - Euro zone leaders will hold an emergency summit on Monday to try to avert a Greek default after bank withdrawals accelerated and government revenue slumped as Athens and its international creditors remain deadlocked over a debt deal.
...
http://www.todayonline.com/business/merk...sters-will

[specuvestor]

OPINION Jun 19 2015 at 8:32 AM Updated 1 hr ago

Grexit fears stir talk of 'deep recession'

by Karen Maley
Greece lurched closer to default overnight, after a meeting of eurozone finance meetings failed to reach a deal at crunch talks in Luxembourg, with hopes for a compromise deal now resting on a Monday's hastily convened emergency meeting of eurozone leaders.

Much to the annoyance of other participants, Greek finance minister Yanis Varoufakis turned up at last night's meeting with a five-page document containing vague commitments but which focused on the need to restructure the country's huge debt burden.

In a meeting lasting less than an hour and a half, eurozone finance ministers made it clear that at this stage they did not plan to extend Greece's bailout program.

News agency Reuters quoted unnamed officials as saying that a senior European Central Bank executive told the meeting last night that it was not sure if Greek banks, which have been suffering large daily deposit outflows, would be able to open on Monday.

Finance Minister Yanis Varoufakis turned up at last night's meeting in Luxembourg with a five-page document containing vague commitments.
Finance Minister Yanis Varoufakis turned up at last night's meeting in Luxembourg with a five-page document containing vague commitments.
The run on Greek banks has accelerated this week, with Greeks withdrawing an estimated €2 billion ($2.9 billion) between Monday and Wednesday.

After the meeting, a visibly annoyed Christine Lagarde, head of the International Monetary Fund, called for a dialogue "with adults in the room". She added that the IMF was open to continuing negotiations, saying although IMF team had been withdrawn from Brussels, it could return at any time.

Greece is trying to unblock the last €7.2 billion in desperately needed bailout funds and avoid default. Without an agreement, the country, whose coffers are empty and which is due to make some large repayments (€1.6 billion to the IMF on 30 June, a further €3.5 billion to the European Central Bank on 20 July) will default, which could force a Greece exit – or Grexit – from the euro zone.

The central bank of Greece warned on Wednesday that failure to reach a deal with the country's international creditors – the IMF, the European Union and the European Central Bank – would "mark the beginning course that would lead initially to a Greek default and ultimately to the country's exit from the euro area and, most likely, from the European Union."

This it warned would result "acute exchange rate crisis" that "would send inflation soaring", and would be followed by a "deep recession."

But the radical leftist government of Alexis Tsipras, which came to power in January pledging to end austerity, is refusing to bow to the demands of the country's creditor. And, as evidenced by the demonstration outside the Greek parliament overnight, his defiant stance still enjoys domestic support.

In contrast, support for Greece within the eurozone is rapidly fading.

In a strange twist of fate, German chancellor, Angela Merkel, who was demonised in Greece during the election campaign, has emerged as one of the country's major advocates, so desperate is she to avoid a Grexit.

But Merkel's position is not easy. Public opinion in Germany is hardening against Greece, and it is also far from certain that she will persuade the Bundestag to approve fresh concessions for Athens.

In addition, the group of eurozone countries that were most affected during the region's debt crisis – Spain, Portugal, Ireland and Cyprus – and were forced to undergo painful austerity programs, are extremely disgruntled at the idea that Athens might receive much more favourable treatment.

Even France and Italy, which seemed the most sympathetic to the Tsipras government when it first won office, are losing their enthusiasm.

Rome lost patience after Greek finance minister Yanis Varoufakis declared that Italy's debt burden was unsustainable. This was unwelcome to an Italian government that has pushed ahead with difficult labour market reforms, and which is seeing the first green shoots of recovery after three years of recession.

And Paris, which for the past five months has worked hard to find a compromise between Athens and the more hardline of the creditors, has adopted a harsher stance in the past few weeks.

Meanwhile, smaller eurozone countries have even less sympathy for Greece's plight. Slovakia, where salaries and pensions are lower than in Greece, questions why its citizens should have to pay to support Greece.

And Finland, which is preparing to make savage cuts in public spending and where the anti-European True Finns are part of the coalition government, is unlikely to show much tolerance for the demands made by Athens.

As per discussed

1) the german people are ready for Grexit but the leaders understood the ramifications
2) there is no unified european identity yet unlike say US where east coast to west are all Americans. Nobody wants to pay for Greek mistake. That is the biggest risk to Euro, not the current structure.

Its gonna be a close call cause Tsipras was voted in for nationalist ideology (actually i think more right wing than left wing socialist) and if he caves he will lose his mandate. My guess is he will give in to some concessions and keep some so that 好下台

[greengiraffe]

Jun 19 2015 at 12:15 AM Updated Jun 19 2015 at 6:05 PM

How Greece may unravel and be forced to exit the EU

by Mark Mulligan
Anyone who watched Argentina melt down in the southern hemisphere summer of 2001 knows that the default-devaluation-depression sequence is never pretty.

At the height of the debt crisis, Buenos Aires resembled a civil war zone, while millions of Argentines watched great chunks of their life savings wiped out at the flick of a foreign exchange board.

Greece's case is complicated by its membership of the European monetary union, a collective of 19 sovereign states whose governments and central banks painstakingly qualified for membership of a single currency in 1999 by meeting a range of stringent criteria on economic management.

Under European Union law, no country can be expelled from the eurozone; it must elect to leave.

Protesters take part in an anti-austerity rally in front of the parliament in Athens, Greece.
Protesters take part in an anti-austerity rally in front of the parliament in Athens, Greece. Yorgos Karahalis
In the case of Greece, this is more likely to be an organic process arising from the need to print money when the banking system runs dry of euro notes and other liquid assets.

CENTRAL BANK

With commercial banks unable to lend to Greek households, business and governments, the central bank would have no recourse but to create a new currency, which loses relative value against the euro at every turn of the printing presses.

Greece is still a long way from this, but things could unravel quickly if depositors and investors are sufficiently spooked by, in the first instance, Greece's inability to pay its debts.

As it is, the ECB is partly propping up Greece's banking system, providing liquidity against collateralised assets to replace disappearing deposits.

According to official data, at the end of April, Greek bank deposits were at their lowest level since November 2004, having shrivelled from around €235 billion at the end of 2009 to about €130 billion now. On Monday there were about €400 million taken out of banks as the pace of withdrawals picked up from last week, according to bankers speaking with Reuters.

The ECB's Emergency Liquidity Assistance (ELA) program is helping to plug this funding gap.

This is currently worth €83 billion, or 21 per cent of Greek bank assets. Once funds from the ECB's other emergency measure - called "outright monetary transactions" – and the EU's own European Stability Mechanism are included, the total value of liquidity pumped into Greece's financial system since the onset of the global financial crisis is €119 billion, equivalent to 67 per cent of the country's gross domestic product.

EMERGENCY LIQUIDITY ASSISTANCE

According to a report this week by Commonwealth Bank of Australia senior currency and rates strategist Peter Dragicevich, banks' use of the emergency liquidity assistance has escalated in recent weeks.

"With respect to recent trends, things appear to be deteriorating," Dragicevich wrote.

"The increase in the ELA provision on June 10 was the largest weekly rise since mid-February."

For this emergency liquidity to continue, Greece and its creditors have to agree to the reforms under discussion which, in turn, gives it access to €7.2 billion in aid.

"If there is no agreement and Greece enters default territory, within a short space of time, the ECB will cut off emergency liquidity assistance to Greek banks and they will become insolvent due to the deposits outflows," says Bob McKee, economist at Independent Strategy in London.

"Inevitably, the government would have to introduce capital controls on bank flows and probably consider taking over the banks.

"Eventually, the government would have to issue IOUs to its public sector workers when the euros run out and this would be a de facto devaluation, probably leading to Grexit," he says.

"It could take weeks, however, to reach that point, or even longer."

[greengiraffe]

SHOULD GREECE JUST GO?
1603 words
20 Jun 2015
The Australian Financial Review
AFNR
English
Copyright 2015. Fairfax Media Management Pty Limited.
Geopolitics Fatigue and frustration are prompting more policymakers to call time on Greece. How worried should the world be about the prospect of the country quitting the euro, writes James Chessell.

BHP Billiton does not own any mines in Greece. Nor does the Melbourne-based mining house consider Greece a particularly important consumer of natural resources. But when the company's chairman, Jac Nasser, interviewed former British prime minister Gordon Brown over dinner at the London hotel Claridge's on Thursday evening, nobody was the least surprised one of his first questions concerned the Greek debt crisis.

Before a select group of investors, FTSE-100 executives and directors invited by Australia's largest company, Brown, who played a key role in averting a full-blown disaster during the global financial crisis, spelt out his views on the latest challenge facing the European Union.

"What will happen is, if there is no agreement, people will say, 'Europe can't solve its problems'," he said. "Even if there is an agreement people will think this is just another last-minute political fix and ask, 'Will it last?"' The drama played out by Greece and its eurozone creditors for much of this year has produced more twists and turns than a Hollywood thriller.

And while the plot remains as complicated as ever, Brown is not the only observer ruling out a happy ending.

Greece desperately needs access to a €7.2 billion ($10.5 billion) tranche of rescue funds. This tranche happens to be the last of two bailout packages worth a combined €240 billion, issued by the International Monetary Fund, the European Central Bank and the European Commission after the financial crisis when Athens was veering towards bankruptcy.

However, Greece's creditors will not unlock the funds until the country's leftist Syriza government agrees to a list of economic reforms that include curbing generous public-sector pensions, overhauling workplace laws in favour of employers, and applying sales taxes to sensitive items such as electricity in a bid generate about €2 billion in annual savings. Syriza, a populist movement elected in January after promising to renegotiate these German-led austerity measures, has so far refused to budge.

If both sides fail to break the deadlock before a critical €1.5 billion payment to the International Monetary Fund due on June 30, then Athens may have no choice but to default, as it has run out of money and cannot access capital markets.

Greece is "staring down the barrel at default", French investment bank BNP Paribas wrote in a note earlier this week, putting the chances of the country defaulting on its debt payments at 50 per cent. This would not automatically lead to a Grexit, the bank's analysts said.

Economists polled by Reuters also believe there is an even chance of Greece defaulting, but rate the probability of it leaving the eurozone still only one-in-three.

Greece would become the first developed nation not to pay back an IMF loan, joining a group that includes Cuba, Zambia and Haiti. More important, a default could trigger a Greek exit from the single-currency eurozone and even the EU altogether.

As Greece teeters on the edge of a full-blown crisis, the brinkmanship has reached new heights.

Prime Minister Alexis Tsipras used a speech to the Greek Parliament on Tuesday to accuse the IMF of "criminal responsibility" for the debt crisis - Greek borrowings are more than 180 per cent of gross domestic product - and to reject the proposed austerity measures as "humiliating for our people". IMF head Christine Lagarde returned fire after a fruitless meeting of eurozone finance ministers in Luxembourg on Thursday, by saying there needed to be "adults in the room" for a deal to happen.

Lagarde will get her chance on Monday, after the EU announced that an emergency summit of eurozone presidents and prime ministers would be held in Brussels. If the deadlock cannot be broken at the eleventh-hour gathering, a default is the most likely outcome.

So just how worried should the world be about the prospect of Greece leaving the eurozone?

A growing number of eurozone policymakers have decided that after five years of fixating on Greece's economic woes - a process Italian economist Francesco Giavazzi likened to "President Barack Obama taking part in high-level talks for months on end, where little was on the agenda except the state of Tennessee" - they should finally walk away.

They complain privately that Tsipras has adopted a fundamentalist line in recent negotiations because he is incapable of tackling Greece's real problems such as widespread tax evasion, relatively high levels of corruption, the concentration of power in the hands of a few oligarchs and ineffective public institutions.

Rather than continue having an argument they can't win, why not deal with Europe's other problems, such as Russia's taking territory in Ukraine or the refugee crisis in the Mediterranean.

At the height of Greece's sovereign debt crisis of 2012, there was widespread concern a default would not just trigger an exit from the eurozone but create a financial shock wave that could rival the collapse of US investment bank Lehman Brothers.

But there is a widely held belief that Greece is no longer systemically important. Europe has put in place financial firewalls to limit the contagion, more than 80 per cent of the Greek debt is held by the public sector, Greek banks have been isolated, and the country's economy accounts for barely 2 per cent of total eurozone output.

Another factor adding to the relative sense of calm is that the countries on the periphery of the eurozone are less susceptible to risk. Yields on Spanish and Italian government bonds wobbled this week but the moves were far less extreme than three years ago. The ECB's €1 trillion quantitative easing program has boosted investor confidence.

"There is no danger of a crash," predicts Commerzbank.

The immediate effects of a Grexit (Greece exiting the eurozone) on the country itself would be tumultuous as depositors pulled their money out of the banks - around €2 billion has been withdrawn this week - and the new drachma plummets in value. Yet some commentators argue that the competitiveness gains from a weaker currency could help Greece stage a genuine recovery.

Greeks are divided about the best course of action. A day after mostly young Syriza supporters gathered at Syntagma Square in Athens outside the parliament to protest against austerity, there were larger (and older) pro-European demonstration on Thursday evening calling for Greece to remain in the EU.

But most observers agree a revaluation of the currency is not enough. The optimistic scenario assumes Greece can achieve structural reforms and maintain an open economy. If this proves too difficult, there is a real chance the birthplace of Western civilisation ends up a failed state and civil unrest takes hold. A country that Finance Minister Yanis Varoufakis acknowledges is losing its "best young people" and where "poverty, hunger is rife, investment has dried up" might take several generations to recover.

The pessimistic scenario is the reason many commentators argue a Grexit would be a disaster for the EU.

"Even if Europe's financial fire walls prevent contagion from taking place, the European project will be tarnished," argues Kent Hughes, a director of the America and the Global Economy program at the Woodrow Wilson Centre. It is a view shared by Brown, who says the chief danger of a Grexit is not financial but that "it does make people think twice about whether Europe can work".

A loss of trust in a united Europe and its drive for "an ever closer union" comes at a particularly difficult time. Syriza is just one of many anti-austerity movements to become a serious political force in the post-GFC years. Anaemic economic growth and high unemployment in countries such as Spain, where the populist far-left Podemos party will challenge for power later this year, has created the risk other countries could agitate to follow Greece out the door.

Meanwhile, the question of Britain's EU membership will be decided next year in a referendum. A "perfect storm" of a Grexit, a Brexit (UK's exit from the EU) and a Spanish election result resembling Greece would mean the "EU's very existence would be in doubt", wrote former German foreign minister Joschka Fischer.

The notion of European integration took root after World War II as a means of sustaining peace and stability on a continent devastated by extreme nationalism. Supporters of the European project argue that this mission remains unchanged.

"Europe's internal crisis is playing out in a dangerous, unstable geopolitical environment," argues Fischer. "Though external threats may bolster strategic co-operation among the EU member states, this may not be enough to keep the union intact, particularly given Russia's effort to divide Europe."

The prospect of fracturing Europe when Russian President Vladimir Putin is showing little regard for national borders is of concern for Germany and France. Tsipras rekindled fears he may turn to Russia for financial assistance when he travelled to St Petersburg on Thursday. Nor is there any appetite in Paris and Berlin to further destabilise the Balkan peninsula.

History was also on the mind of EU economic affairs commissioner Pierre Moscovici, a Frenchman who noted that the Luxembourg meeting was taking place on the 200th anniversary of another critical event for the continent.

Asked about the breakdown in negotiations, he said: "I certainly don't want this to be a Battle of Waterloo."


Fairfax Media Management Pty Limited

Document AFNR000020150619eb6k00013

[greengiraffe]

http://www.bloomberg.com/news/articles/2...on-or-ruin

Dorothea Lambros stood outside an HSBC branch in central Athens on Friday afternoon, an envelope stuffed with cash in one hand and a 38,000 euro ($43,000) cashier’s check in the other.
She was a few minutes too late to make her deposit at the London-based bank. She was too scared to take her life-savings back to her Greek bank. She worried it wouldn’t survive the weekend.
“I don’t know what happens on Monday,” said Lambros, a 58-year-old government employee.
Nobody does. Every shifting deadline, every last-gasp effort has built up to this: a nation that went to sleep on Friday not knowing what Monday will bring. A deal, or more brinkmanship. Shuttered banks and empty cash machines, or a few more days of euros in their pockets and drachmas in their past - - and maybe their future...

Very good reading as fundamentally, there is no way that Greece can escape the inevitable since the nation is building on flaw economic model...

[CityFarmer]

The latest update on the Greece issue. IMO, the Greek PM is serving as an "bankruptcy lawyer" for his clients (the Greek)...

U.S. share futures leap as Greece offers new reform deal

TOKYO - U.S. stock futures jumped in early Asian trade on Monday after Greek Prime Minister Alexis Tsipras offered a new package of reforms to foreign creditors - a ray of hope for a last-minute deal at the emergency euro zone summit meeting later in the day.

But many investors were still cautious because it was not immediately clear how far the new proposal yielded to creditors' demands for additional spending cuts and tax hikes, nor whether creditors can stomach the offer.

"Greece will be reaching a climax this week and markets will be extremely nervous. The markets are on the whole moderately hopeful on a deal. But it is difficult to tell the outcome as this will be a highly political decision," said Masakazu Kabeya, chief global strategist at Daiwa Securities.
...
http://www.todayonline.com/business/us-s...eform-deal

[greengiraffe]

Greece will never be able to solve their fundamental issue of leakages... as long as they cannot resolve tax evasion, the problem will always be there.

Let Greece go on its on and let everyone continue with their own life...

The latest update on the Greece issue. IMO, the Greek PM is serving as an "bankruptcy lawyer" for his clients (the Greek)...

U.S. share futures leap as Greece offers new reform deal

TOKYO - U.S. stock futures jumped in early Asian trade on Monday after Greek Prime Minister Alexis Tsipras offered a new package of reforms to foreign creditors - a ray of hope for a last-minute deal at the emergency euro zone summit meeting later in the day.

But many investors were still cautious because it was not immediately clear how far the new proposal yielded to creditors' demands for additional spending cuts and tax hikes, nor whether creditors can stomach the offer.

"Greece will be reaching a climax this week and markets will be extremely nervous. The markets are on the whole moderately hopeful on a deal. But it is difficult to tell the outcome as this will be a highly political decision," said Masakazu Kabeya, chief global strategist at Daiwa Securities.
...
http://www.todayonline.com/business/us-s...eform-deal