Home' Trinidad and Tobago Guardian : June 21st 2015 Contents SBG14 FINANCE
SUNDAY BUSINESS GUARDIAN www.guardian.co.tt JUNE 21 • 2015
Stay or go? The time is
for Greece and the
nations using the euro
Athens must pay 1.6 billion euros (US$1.8
billion) off its debts at the end of the month
to avoid a possible default and secure for
a little longer its cherished place among the
19 countries using the single currency.
Greece needs new financial aid from cred-
itors to be able to make the June 30 date
with the debt collector.
A deal is still nowhere in sight, though,
with both sides refusing to compromise over
what reforms Greece should make in
exchange for more loans.
One thing is certain, a possible "Grexit"
is being discussed in European capitals and
contingency plans are being laid.
"Member states are understandably nerv-
ous," European Commission Vice President
Valdis Dombrovskis said Wednesday in a
rare public acknowledgement that some fear
"We are in the middle of June. By end of
June, the current program expires and there
are of course some discussions also on less
favorable scenarios," he said.
But will Greece do the unthinkable and
leave the euro, or be forced out? Is it even
Here are some questions and answers on
Greece s future. They could come in handy
during Thursday s meeting of eurozone
finance ministers in Luxembourg.
How does a country leave the
Technically, it can t. These are uncharted
waters. European Union treaties legally allow
members to leave the 28-nation EU, but no
mechanism was foreseen to let countries
leave the euro.
Theoretically, if all 19 nations agree that
it s time for Greece to go then a "Grexit"
could be negotiated. Some argue the country
might have to leave the EU altogether to
leave the single currency._
When is the point of no return?
That would be when the European Central
Bank decides to cut off emergency credit
to Greece s banks, according to Zsolt Darvas,
senior fellow at the Breugel think-tank in
That could happen if there is a run on
Greek banks in which case the ECB might
not want to risk its money supporting them.
Concerns over a run on banks could grow
if it becomes clear that Greece will default
on its next debt repayment, due June 30.
The ECB could also cut Greek banks loose
if the country defaults on debt repayments
due to the ECB in July and August.
What would happen then?
Banks would probably have to close for
a while and when they reopen, the govern-
ment would likely put limits on how much
money depositors can take out. "People
would try to take their money out of the
banks. The banks would not be able to pay,"
Darvas says. "People would try to store their
euros at home, not pay taxes, and the whole
financial system would come to a halt."
How can Greece avoid such a
Apart from pay its debts on time, some
experts believe Greece could limit the dam-
age by engineering its departure in secret.
A small group of officials could make the
exit preparations and then act on them
almost immediately. They would inform
their eurozone partners just hours before
Greece walks out the door, according Roger
Bootle, who heads the research analysis
group Capital Economics. The public would
be the last to know.
What money would Greece use?
Greece could go back to using the drachma
or introduce a new currency. Either way,
volume is essential, and that implies serious
challenges. Iraq faced similar issues when
it introduced a new dinar in just three
months following the US-led invasion. "You
would need a huge volume, very quickly.
There s also the transportation that is a very
big challenge. A lot of police, troops would
be required to attend to the cash needs of
a country the size of Greek. Logistically it
would be a huge challenge," Darvas says.
What would happen to its debt?
Greece s bills won t go away, and the jury
is out on whether they could be converted
to a new currency, although Greece would
probably try to redenominate and renegotiate
The one advantage in this for Athens is
that all kinds of loans would probably be
written down by its creditors. But Darvas
says that "all of these technical issues can
The economic costs of a euro exit---GDP
fall and the rise in unemployment---will be
The Greeks must make a 1.6 billion-euro loan
payment to the International Monetary Fund this
month. They don t have the money. They re nego-
tiating with the IMF and the other eurozone coun-
tries to get 7.2 billion euros in loans; the last install-
ment in a bailout package expiring this month.
Without that money, Greece will likely default
on the IMF loan. Even bigger payments come due
later this summer.
Its creditors are demanding that Greece slash
public pensions and reform its tax system before
releasing the money.
No bond market
Greece needs loans because it cannot borrow on
bond markets at affordable rates, as other countries
do to finance their spending. Greece s bond rates---
effectively what international investors demand in
return for lending the country money---spiked higher
in late 2009 when Greece revealed that its public
deficit was far higher than expected.
Greece is having trouble reaching a deal with
creditors because a new government, elected in
January, says it will not abide by the terms that
previous governments have accepted for years. Those
terms include cuts to pensions, wages, public sector
jobs as well as higher taxes.
Such budget austerity measures aim to reduce
the budget deficit but have also hurt the economy
by increasing unemployment, making Greeks poorer
and reducing the amount of disposable income
The current government, led by the radical left
Syriza party, says it will not make more such meas-
ures. Creditors are insisting it should if it wants
more loans, because they are worried that if Greece
doesn t get its public finances back in shape, they ll
never get their money back.
The risks of default are that it could unsettle
confidence among Greeks and cause bank runs.
The banks are currently supported with emergency
credit allowed by the European Central Bank. If
Greece can t pay its creditors, the government debt
lenders use as collateral for their ECB loans would
become worthless and the ECB could withdraw its
Greece would have to then support the banks
itself; but it doesn t have the money to do so. It
would theoretically then have to start printing its
own money to get cash flowing through the economy
again. Doing so, it would effectively be leaving the
Greece s problems will not be solved forever with
those 7.2 billion euros. The money would only cover
its debt repayments for a few months. So Greece
and its creditors need to find a longer-term solu-
Because most of Greece s debts consist of bailout
loans, the country would be helped if its creditors
agreed to make the terms of those loans easier;
either by reducing the interest Greece has to pay
on them or extending their repayment date.
Creditors had promised last year to consider this.
But they say a decision can be taken only after
Greece has fulfilled the reforms demanded in
exchange for the 7.2 billion euros in loans. Greece
wants such a decision on lightening its debt terms
A Thursday, June 11, 2015 file photo showing Greek Prime Minister Alexis Tsipras looking at his watch as he departs the EU-CELAC
summit in Brussels. Greek Prime Minister Alexis Tsipras continued his diplomatic offensive on Thursday to try to convince European
creditors to pay out the bailout loans the country needs to avoid default. AP
Will Greece leave
A look at its options
problems and how
it got here
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