Home' Trinidad and Tobago Guardian : June 7th 2015 Contents SBG16 FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JUNE 7 • 2015
Many economists think
a Greek departure from
the euro currency
alliance would be a dis-
aster. For Greece.
But for the rest of Europe? Maybe not.
Greece is struggling to meet deadlines to
repay a crushing debt load and avoid a default
that could drive it out of the 19-country euro-
zone. Yet any fear that a Greek exit might
ignite a broader financial catastrophe---as the
2008 collapse of US investment bank Lehman
Brothers did---is misplaced, some analysts
say.Others worry that letting a country leave
the alliance could permanently damage their
Greece s new left-wing government is
struggling to convince its international cred-
itors that its reform plans are credible. The
two sides have been at odds over such issues
as pension cuts, tax increases and revenue
surpluses required of Greece.
An agreement is needed for Greece to
receive the remaining money in its bailout
fund: 7.2 billion euros (US$8.1 billion). Without
it, Greece risks bankruptcy.
The Greek government is resisting the tough
conditions attached to more bailout loans.
On Thursday, it took the unusual step of
asking to bundle the four payments that are
due this month to the International Monetary
Fund into one payment on June 30.
But the standoff raises the likelihood of an
endgame in which Greece runs out of money,
restricts the flow of capital and produces a
new national currency so it can print money
to pay its bills.
Here s what could be at stake outside Greece:
A period of turmoil
Economist Holger Schmieding at Berenberg
Bank in London predicts a period of "disori-
entation" while investors figure out what the
impact will be. The first word of an impending
departure would likely roil markets, especially
in Europe. Stocks and the euro might fall.
And borrowing costs for other eurozone gov-
ernments with shaky public finances, such
as Italy and Portugal, might rise, at least tem-
Yet Schmieding foresees no serious long-
term damage and dismisses talk of a com-
parison to Lehman s collapse. The risk for
Europe as a whole, he says, "is very, very
small: virtually zero."
The key difference between Lehman and
Greece centres on the element of surprise,
according to Schmieding: Lehman s collapse
was unexpected and spread panic across mar-
kets as investors wondered which bank would
go under next.
There s no surprise surrounding Greece.
Everyone knows that the country, which
accounts for only around two per cent of the
eurozone economy, has been in trouble since
2009. Lenders have had plenty of time to
curtail loans and investments in Greece. So
they have little connection to the financial
Whether Greece stays or goes, just ending
the uncertainty would help, says Schmieding:
"The resolution of this, one way or another,
would be better than the current stalemate."
The big snooze
So far, markets appear to be with Schmied-
ing. European stocks are off recent highs but
haven t suffered a serious drop. And bond
investors appear to be signaling their confi-
dence that Europe could withstand a Greek
exit without serious damage. Even heavily
indebted, slow-growth Italy can still borrow
at just 2.1 per cent annual interest: down
from over seven per cent in 2011.
European markets have been soothed by
a 1.1 trillion-euro (US$1.2 trillion) bond pur-
chase programme from the European Central
Bank, which is trying to raise inflation and
accelerate the economy.
Could allowing one country to leave the
eurozone for the first time destroy confidence
in the alliance over the long run? Lenders
might begin calculating the risk that another
country would leave the alliance and fail to
repay its debts. They would, as a result, likely
demand higher interest rates to compensate
for that risk. That would make it costlier for
governments to borrow and erode one of the
key achievements of the monetary union.
Tools to use against trouble
Optimists point to the eurozone s new tools
to defend itself against the sort of crisis it s
struggled to manage for the past few years.
As a result of the Greek crisis, and the ensuing
problems endured by the likes of Ireland and
Spain, the eurozone has created a bailout fund
that can lend to troubled countries.
The ECB has also offered to buy govern-
ment bonds of countries that come under
pressure if they accept reforms. This helps
hold down borrowing rates. And the ECB
now oversees big banks. That contrasts with
early supervision by national authorities,
which were sometimes slow to address prob-
Not so sure
In the end, no one really knows what will
happen if Greece exits the euro.
US Treasury Secretary Jacob Lew has
warned his European counterparts that the
risks are unknown. He s urged Greece and
its creditors---the IMF, the ECB and the Euro-
pean Commission---to forge a deal. AP
It s the billion-dollar question: is Greece going
to repay the International Monetary Fund on
Or will it, in the absence of a new deal with its
official creditors, dare default on the global crisis
lender which has joined two massive bailouts of the
Athens is scheduled to repay 1.6 billion euros (US$1.8
billion) to the IMF in four steps between now and
June 19. The first payment is around 300 million
euros due on Friday.
But to make those payments, Athens needs to access
more funds from the European Commission, the
European Central Bank and the IMF, specifically a
US$7.2 billion transfer under the current Greece bailout
programme that has been held up for months as the
two sides wrangle over the conditions tied to the
If the first loan repayment does not arrive on Friday
night, the axe falls: Greece will be considered officially
in arrears, and will not be eligible to receive any of
the 16.5 billion euros in financial support that the
IMF has committed to support the country through
That risks pushing the already destitute Greek econ-
omy further into the abyss.
So far the Greek government, led by the Syriza
party, has left unclear whether it will make the pay-
ment, while it continues talks with creditors over the
conditions for a new deal.
At the end of May, Interior Minister Nikos Voutsis
warned that Athens had "no money" to make the
repayments to the IMF.
But after that the government stressed it would
pay its debts, if it was in the position to do so.
As of late Wednesday, crunch talks between Greek
Prime Minister Alexis Tsipras and European Com-
mission chief Jean-Claude Juncker were unable to
bridge the gap between the two sides, pushing Athens
ever closer to default, with the consequences of that
not all clear.
But the IMF has remained stone-faced. "We expect
the Greek authorities will pay us," a Fund spokesman
said last week.
One suggestion to buy time for a deal has been that
Athens group all of its June IMF payments into one
and deliver the money at the end of the month.
But the country has not asked to do that, a source
told AFP Wednesday.
A default is definitely possible, said analysts at Com-
"Without fresh bailout funds, the Greek government
is unlikely to have the money to meet the mid-June
repayments," they said.
"This would be a red flag," Domenico Lombardi, a
former member of the IMF board, told AFP.
The shock of a default could spur the Europeans
to raise the pressure on Greece, including a move by
the ECB to tighten the flow of funds that have propped
up Greek banks during the crisis, notes Lombardi.
"The ECB could decide to make the funding of the
Greek banks more complicated, even vitally impossible,"
A Greek default on IMF loans would place the coun-
try among a few such countries, with the others all
at least able to blame war (Afghanistan, Iraq, Yugoslavia)
or a political turmoil (Haiti).
But the IMF itself would not come out unscathed.
It put its credibility with its members at risk in helping
arrange and manage the rescue of Greece with the
largest bailout loans the Fund has ever approved.
Those loans were sharply contested inside the institution,
and non-payment could renew the controversy.
"If Greece does not service one of these instalments
to the IMF, Grexit would undoubtedly be another step
closer. But it is unlikely to happen in the near-term."
Greece's Prime Minister Alexis Tsipras, right and Greek finance Minister Yanis Varoufakis, bottom left, smile each other during an emergency
Parliament session in Athens, on Friday, June 5, 2015. Tsipras said that his government cannot accept "irrational" proposals like one made
this week by the institutions overseeing Greece's bailout, and insisted any solution must also include some form of debt relief. (AP)
Greece would suffer
if it left eurozone
...But would Europe?
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