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Greece debt crisis: Where next for Athens if it doesn’t pay?

Published 29/06/2015

Demonstrators during a rally in Athens, Greece, 29 June 2015 (Photo by Milos Bicanski/Getty)
Demonstrators during a rally in Athens, Greece, 29 June 2015 (Photo by Milos Bicanski/Getty)

The 9 questions you were too embarrassed to ask about the Greek debt crisis

Q | Why is 30 June the moment of truth for Greece?


A | Because unless a miracle occurs, Greece will become the first developed country in history to fail to repay money owed to the International Monetary Fund.

Athens is due to pay the Fund €1.6bn (£1.1bn) at 6pm Washington time (11pm) but it doesn’t have the cash to do so. And its creditors in the eurozone and the IMF are refusing to support Athens, after talks finally broke down on a cash-for-reforms deal at the weekend.

The die was cast when the Greek Prime Minister, Alexis Tsipras, called a national referendum on whether or not to accept the creditors’ demands for labour market reforms and more austerity.

 

Q | What does this mean for Greece and the eurozone?


A | More important than failing to pay the IMF is the fact that Greece will also become the first eurozone country since the single currency was formed in 1999 to miss a sovereign repayment.

In addition, Greece’s €240bn bailout agreement with the rest of the eurozone expires on Tuesday night – with nothing to replace it. These two facts will put tremendous pressure on the European Central Bank to cut off funding to Greece’s banks – which are only still alive because they have received extensive monetary support from it.

The ECB has already said it will not give the Greek banks any extra funding to replace the rapid outflows of domestic deposits, forcing Athens to impose strict limits on cash withdrawals from 29 June.

Outgoing Greek Finance minister Yanis Varoufakis leaves onto his motorcycle with his wife Danai after his resignation at the ministry of Finance in downtown Athens on July 6 2015. Varoufakis resigned in what appeared to be a concession by Prime Minister Alexis Tsipras to international creditors after his resounding victory in a historic bailout referendum. AFP/Getty Images
Outgoing Greek Finance minister Yanis Varoufakis leaves onto his motorcycle with his wife Danai after his resignation at the ministry of Finance in downtown Athens on July 6 2015. Varoufakis resigned in what appeared to be a concession by Prime Minister Alexis Tsipras to international creditors after his resounding victory in a historic bailout referendum. AFP/Getty Images
German Federal Chancellor Angela Merkel leaves at the end of a Special EU Summit on the Greek crisis at the EU Council building in Brussels, July 07, 2015. European leaders gave debt-stricken Greece a final deadline of July 12 to reach a new bailout deal and avoid crashing out of the euro, after Greek voters rejected international creditors' plans in a weekend referendum. AFP PHOTO/THIERRY CHARLIERTHIERRY CHARLIER/AFP/Getty Images
Greek Prime Minister Alexis Tsipras, center, leaves the building after an emergency summit of eurozone heads of state or government in Brussels on Tuesday, July 7, 2015. Frustrated and angered eurozone leaders gave Greek Prime Minister Alexis Tsipras a last-minute chance on Tuesday to finally come up with a viable proposal on how to save his country from financial ruin. (AP Photo/Michel Euler)
Greek Prime Minister Alexis Tsipras (2nd R), German Chancellor Angela Merkel (4th L), European Commission President Jean-Claude Juncker (2nd R) and French President Francois Hollande (R) talk during a meeting prior to the emergency Euro Summit, on July 7, 2015 in Brussels, Belgium.
A woman walks past a slogan written on a wall in Athens on July 7, 2015. Eurozone leaders will hold an emergency summit in Brussels on July 7 to discuss the fallout from Greek voters' defiant "No" to further austerity measures, with the country's Prime Minister Alexis Tsipras set to unveil new proposals for talks. AFP PHOTO / LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
TOPSHOTS An elderly man stands beside a lifebuoy hanging on a wall outside a chapel in central Athens on July 7, 2015. Eurozone leaders will hold an emergency summit in Brussels on July 7 to discuss the fallout from Greek voters' defiant "No" to further austerity measures, with the country's Prime Minister Alexis Tsipras set to unveil new proposals for talks. AFP PHOTO / ARIS MESSINISARIS MESSINIS/AFP/Getty Images
Former Greek finance minister Yanis Varoufakis faces a barage of media questions as he leaves the finance ministry after resigning this morning on July 6, 2015 in Athens, Greece. Politicians in Europe and Greece are planning emergency talks after Greek voters rejected EU proposals to pay back it's creditors creating an uncertain future for Greece. (Photo by Christopher Furlong/Getty Images)
TOPSHOTS Greece's maverick finance minister Yanis Varoufakis, who announced his surprise resignation leaves the Ministry of Finance with his wife Danai on the back of a motorbike downtown Athens, on July 6 2015. Germany dismissed Greece's bid to clinch a quick new debt deal after the country delivered a resounding 'No' to more austerity, appearing little moved by the surprise resignation of the Greek finance minister. AFP PHOTO / ANDREAS SOLAROANDREAS SOLARO/AFP/Getty Images
Outgoing Greek Finance Minister Yanis Varoufakis leaves the finance ministry in Athens, on July 6, 2015. Varoufakis resigned in what appeared to be a concession by Prime Minister Alexis Tsipras to international creditors after his resounding victory in a historic bailout referendum. All eyes turned to the European Central Bank on July 6, following the resounding 'No' in Greece's referendum, as it is seen as the only institution capable of stemming market panic and preventing the Greek economy from collapsing. AFP PHOTO/ LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
Elderly people argue with a bank worker as they wait to be allowed into the bank to withdraw a maximum of 120 euros ($134) for the week in Athens, Monday, July 6, 2015. Greeces Finance Minister Yanis Varoufakis has resigned following Sundays referendum in which the majority of voters said no to more austerity measures in exchange for another financial bailout. (AP Photo/Emilio Morenatti)
Elderly people argue with a bank worker as they wait to be allowed into the bank to withdraw a maximum of 120 euros ($134) for the week in Athens, Monday, July 6, 2015. Greeces Finance Minister Yanis Varoufakis has resigned following Sundays referendum in which the majority of voters said no to more austerity measures in exchange for another financial bailout. (AP Photo/Emilio Morenatti)
TOPSHOTS A woman holds a Greek national flag as people celebrate in front of the parliament on July 5, 2015 in Athens after early results showed those who rejected further austerity measures in a crucial bailout referendum were poised to win. Greek voters headed to the polls July 5 to vote in a historic, tightly-fought referendum on whether to accept worsening austerity measures in exchange for more bailout funds, in a gamble that could see the country crash out of the euro.FP PHOTO /ARIS MESSINISARIS MESSINIS/AFP/Getty Images
TOPSHOTS People celebrate in Athens on July 5, 2015 after the first exit-polls of the Greek referendum. Over 60 percent of Greeks rejected further austerity dictated by the country's EU-IMF creditors in a referendum, results from 20 percent of polling stations showed. AFP PHOTO / LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
TOPSHOTS People celebrate in Athens on July 5, 2015 after the first exit-polls of the Greek referendum. Over 60 percent of Greeks rejected further austerity dictated by the country's EU-IMF creditors in a referendum, results from 20 percent of polling stations showed. AFP PHOTO / LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
Supporters of the No vote celebrate after the results of the referendum in the northern Greek port city of Thessaloniki, Sunday, July 5, 2015. Greeks overwhelmingly rejected creditors demands for more austerity in return for rescue loans in a critical referendum Sunday, backing Prime Minister Alexis Tsipras, who insisted the vote would give him a stronger hand to reach a better deal. (AP Photo/Giannis Papanikos)
Supporters of the No vote celebrate after the results of the referendum at Syntagma square in Athens, Sunday, July 5, 2015. Greeks overwhelmingly rejected creditors demands for more austerity in return for rescue loans in a critical referendum Sunday, backing Prime Minister Alexis Tsipras, who insisted the vote would give him a stronger hand to reach a better deal. (AP Photo/Petr David Josek)
'NO' supporters dance a Greek traditional dance in front of the parliament late on July 5, 2015 in Athens after early results showed those who rejected further austerity measures in a crucial bailout referendum were poised to win. Greek voters headed to the polls July 5 to vote in a historic, tightly-fought referendum on whether to accept worsening austerity measures in exchange for more bailout funds, in a gamble that could see the country crash out of the euro. AFP PHOTO / LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
'NO' supporters hold a banner reading 'NO' in front of the parliament late in Athens on July 5, 2015. Greece's Prime Minister Alexis Tsipras said that the 'No' victory in the country's bailout referendum did not mean Athens was headed for a so-called Grexit. AFP PHOTO / Louisa GouliamakiLOUISA GOULIAMAKI/AFP/Getty Images
ATHENS, GREECE - JULY 06: People celebrate in front of the Greek parliament as the people of Greece reject the debt bailout by creditors on July 6, 2015 in Athens, Greece. The greek people have rejected a debt bailout in a referendum with nearly 62% voting "No", against 38% voting "Yes" according to interior ministry figures (Photo by Christopher Furlong/Getty Images)
ATHENS, GREECE - JULY 05: People celebrate in front of the Greek parliament as Greek voters are expected to vote no in the Greek austerity referendum, on July 5, 2015 in Athens, Greece. The people of Greece are going to the polls to decide if the country should accept the terms and conditions of a bailout with its creditors. Greek Prime Minister Alexis Tsipras is urging people to vote "a proud no" to European creditors' proposals, and "live with dignity in Europe". 'Yes' campaigners believe that a no vote would mean financial ruin for Greece and the loss of the Euro currency. (Photo by Milos Bicanski/Getty Images)
ATHENS, GREECE - JULY 05: Greek Finance Minister Yanis Varoufakis leaves his office as Greek voters are expected to vote no in the Greek austerity referendum, on July 5, 2015 in Athens, Greece. The people of Greece are going to the polls to decide if the country should accept the terms and conditions of a bailout with its creditors. Greek Prime Minister Alexis Tsipras is urging people to vote "a proud no" to European creditors' proposals, and "live with dignity in Europe". 'Yes' campaigners believe that a no vote would mean financial ruin for Greece and the loss of the Euro currency. (Photo by Milos Bicanski/Getty Images)
European MP and former president of the left-wing party Front de Gauche Jean-Luc Melenchon (C) gestures during a rally in support of the people of Greece on the Republique square in Paris on July 5, 2015, after Greeks voted in a referendum on bailout conditions. Early results in Athens showed those who rejected further austerity measures in a Greek crucial bailout referendum were poised to win. Over 61 percent of Greek voters on July 5 rejected fresh austerity demands by the country's EU-IMF creditors in a historic referendum, official results from 50 percent of polling stations showed. AFP PHOTO / JOEL SAGETJOEL SAGET/AFP/Getty Images
Supporters of the No vote react after the results of the referendum at Syntagma square in Athens, Sunday, July 5, 2015. Greece faced an uncharted future as its interior ministry predicted Sunday that more than 60 percent of voters in a hastily called referendum had rejected creditors' demands for more austerity in exchange for rescue loans. (AP Photo/Emilio Morenatti)
People shout slogans in front of the White Tower, city's landmark, in Thessaloniki on July 5, 2015, after early results showed those who rejected further austerity measures in a crucial bailout referendum were poised to win. Over 61 percent of Greek voters on July 5 rejected fresh austerity demands by the country's EU-IMF creditors in a historic referendum, official results from 50 percent of polling stations showed. AFP PHOTO /Sakis MitrolidisSAKIS MITROLIDIS/AFP/Getty Images
People shout slogans in front of the Greek parliament in Athens on July 5, 2015 after the first exit-polls of the Greek referendum. Over 60 percent of Greeks rejected further austerity dictated by the country's EU-IMF creditors in a referendum, results from 20 percent of polling stations showed. AFP PHOTO / Angelos TzortzinisANGELOS TZORTZINIS/AFP/Getty Images
A man celebrates at Klafthmonos Square in Athens on July 5, 2015 after the first exit-polls of the Greek referendum. A referendum to decide whether or not Greece will accept the bailout conditions proposed jointly by the European Commission, the International Monetary Fund and the European Central Bank took place on July 5, with initial polls suggesting the Greek country not wanting to pay back their creditors. AFP PHOTO / IAKOVOS HATZISTAROUIAKOVOS HATZISTAVROU/AFP/Getty Images
Supporters of the No vote react after the referendum's exit polls at Klafthmonos square in Athens, Sunday, July 5, 2015. Greece faced an uncharted future as officials counted the results of a referendum Sunday on whether to accept creditors' demands for more austerity in exchange for rescue loans, with three opinion polls showing a tight race with a narrow victory likely for the "no" side. (AP Photo/Petr David Josek)
A woman celebrates at Klafthmonos Square in Athens on July 5, 2015 after the first exit-polls of the Greek referendum. A referendum to decide whether or not Greece will accept the bailout conditions proposed jointly by the European Commission, the International Monetary Fund and the European Central Bank took place on July 5, with initial polls suggesting the Greek country not wanting to pay back their creditors. AFP PHOTO / IAKOVOS HATZISTAROUIAKOVOS HATZISTAVROU/AFP/Getty Images
ATHENS, GREECE - JULY 05: People celebrate in front of the Greek parliament as early opinion polls predict a win for the Oxi, or No, campaign in the Greek austerity referendum. Crowds are begining to gather in the squares of Athens waiting for the official result on July 5, 2015 in Athens, Greece. The people of Greece went to the polls to decide if the country should accept the terms and conditions of a bailout with its creditors. Greek Prime Minister Alexis Tsipras is urging people to vote "a proud no" to European creditors' proposals, and "live with dignity in Europe". 'Yes' campaigners believe that a no vote would mean financial ruin for Greece and the loss of the Euro currency. (Photo by Christopher Furlong/Getty Images)
Polling station officials count the ballots at a polling station in Athens on July 5, 2015. The 'No' vote was seen prevailing in Greece's referendum, as two exit polls suggest. Greek voters headed to the polls July 5 to vote in a historic, tightly-fought referendum on whether to accept worsening austerity measures in exchange for more bailout funds, in a gamble that could see the country crash out of the euro. AFP PHOTO / LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
Greek Prime Minister Alexis Tsipras votes during the Greek referendum in Athens on July 5, 2015. Greek voters headed to the polls today to vote in a historic, tightly fought referendum on whether to accept worsening austerity in exchange for more bailout funds, in a gamble that could see it crash out of the euro. AFP PHOTO / ARIS MESSINISARIS MESSINIS/AFP/Getty Images
A man withdraws money from an ATM near graffiti reading "Euro = Swastika, 1939-1944: 500,000 Greeks dead" in downtown Athens on July 5, 2015. Greek voters headed to the polls to vote in a historic, tightly fought referendum on whether to accept worsening austerity in exchange for more bailout funds, in a gamble that could see it crash out of the euro. AFP PHOTO / ANDREAS SOLAROANDREAS SOLARO/AFP/Getty Images
People hold a banner reading "Oxi Troika" (No Troika) as they take part in a demonstration in support of Greece, in Lisbon on July 4, 2015 a day before nearly 10 million Greek voters take to the ballot booths to vote 'Yes' or 'No' in a referendum asking if they accept more austerity measures in return for bailout funds. The referendum on a deal with European governments, the European Union (EU) and International Monetary Fund (IMF), was called by Prime Minister Alexis Tsipras on the night of June 26-27. AFP PHOTO/ JOSE MANUEL RIBEIROJOSE MANUEL RIBEIRO/AFP/Getty Images
(FILES)-A July 3, 2015 shows Giorgos Chatzifotiadis, sitting on the ground crying outside a national bank branch, as pensioners (unseen) queue to withdraw their pensions, with a limit of 120 euros, in Thessaloniki. Retiree Giorgos Chatzifotiadis had queued up at three banks in Greece's second city of Thessaloniki in the hope of withdrawing a pension on behalf of his wife, but all in vain. When he was told at the fourth that he could not withdraw his 120 euros ($133), it was all too much and he collapsed in tears. AFP PHOTO /SAKIS MITROLIDISSAKIS MITROLIDIS/AFP/Getty Images
(FILES)-A July 3, 2015 shows Giorgos Chatzifotiadis, assisted by an employee and a policeman, as he sits on the ground outside a national bank branch, as pensioners (unseen) queue to withdraw their pensions, with a limit of 120 euros, in Thessaloniki. Retiree Giorgos Chatzifotiadis had queued up at three banks in Greece's second city of Thessaloniki in the hope of withdrawing a pension on behalf of his wife, but all in vain. When he was told at the fourth that he could not withdraw his 120 euros ($133), it was all too much and he collapsed in tears. AFP PHOTO /SAKIS MITROLIDISSAKIS MITROLIDIS/AFP/Getty Images
Greek Communist Party supporters listen to speeches during a rally in Syntagma Square near the Parliament on July 2, 2015 in Athens, Greece. As people continue to queue outside banks Greek finance minister Yanis Varoufakis said that he will quit if voters don't back him up in Sunday's referendum. (Photo by Christopher Furlong/Getty Images)
Greek Communist Party supporters listen to speeches during a rally in Syntagma Square near the Parliament on July 2, 2015 in Athens, Greece. As people continue to queue outside banks Greek finance minister Yanis Varoufakis said that he will quit if voters don't back him up in Sunday's referendum. (Photo by Christopher Furlong/Getty Images)
Greek Communist Party supporters wave flags during a rally in Syntagma Square near the Parliament on July 2, 2015 in Athens, Greece. As people continue to queue outside banks Greek finance minister Yanis Varoufakis said that he will quit if voters don't back him up in Sunday's referendum. (Photo by Christopher Furlong/Getty Images)
TOPSHOTS A man walks past a "one euro" store in central Athens on July 2, 2015. Greece's left-wing government "may very well" resign if a referendum this weekend on bailout conditions results in a 'Yes' vote, Finance Minister Yanis Varoufakis said in a radio interview on July 2. AFP PHOTO / LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
TOPSHOTS A man sits at a bus station next to a poster reading "YES to Greece, yes to the Euro" ahead of a referendum in Athens on July 2, 2015. Greece's left-wing government "may very well" resign if a referendum this weekend on bailout conditions results in a 'Yes' vote, Finance Minister Yanis Varoufakis said in a radio interview on July 2. AFP PHOTO / ARIS MESSINIS ARIS MESSINIS/AFP/Getty Images
TOPSHOTS An elderly woman is assisted by an employee from the National bank of Greece in Athens, after she felt unwell while waiting in line to get her pension, on July 2, 2015.Greece's left-wing government "may very well" resign if a referendum this weekend on bailout conditions results in a 'Yes' vote, Finance Minister Yanis Varoufakis said in a radio interview on July 2. AFP PHOTO / LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
TOPSHOTS A woman walks past posters reading 'NO' ahead of a referendum in Athens on July 2, 2015. Greece's left-wing government "may very well" resign if a referendum this weekend on bailout conditions results in a 'Yes' vote, Finance Minister Yanis Varoufakis said in a radio interview on July 2. AFP PHOTO / ARIS MESSINISARIS MESSINIS/AFP/Getty Images
TOPSHOTS Pensioners queue outside a national bank brunch, as banks only opened for pensioners to allow them to get their pensions, with a limit of 120 euros, in Athens on July 2, 2015. Greece's left-wing government "may very well" resign if a referendum this weekend on bailout conditions results in a 'Yes' vote, Finance Minister Yanis Varoufakis said in a radio interview Thursday. AFP PHOTO / ARIS MESSINISARIS MESSINIS/AFP/Getty Images
Supporters of Greece's Comunist Party KKE shout slogans during a demonstration in Athens on July 2, 2015. General Secretary of the KKE called his party's supporters to vote with an invalid ballot at on the July 5 referendum seen as decisive for the nearly insolvent EU country's political and financial future. Greece's left-wing government "may very well" resign if a referendum this weekend on bailout conditions results in a 'Yes' vote, Finance Minister Yanis Varoufakis said in a radio interview. AFP PHOTO / ARIS MESSINISARIS MESSINIS/AFP/Getty Images
An anti-EU protester scuffles with police outside the European Comission offices in Athens on July 2, 2015. Greece's government and international creditors raised the stakes on July 2 over a weekend referendum seen as decisive for the nearly insolvent EU country's political and financial future. While Prime Minister Alexis Tsipras has urged Greeks to vote 'No' to the austerity measures demanded by international creditors, opposition parties including the centre-right New Democracy are campaigning for a 'Yes' vote in the referendum on July 5. AFP PHOTO / Louisa GouliamakiLOUISA GOULIAMAKI/AFP/Getty Images
Elderly people take a rest during a demonstration of supporters of Greece's anti-European communist party (KKE) in Athens on July 2, 2015. General Secretary of KKE called his party's supporters to vote with an invalid ballot at the referundum of July 5. The radical left government of Prime Minister Alexis Tsipras "may very well" resign if Greeks spurn its call to vote 'No' in the plebiscite, Finance Minister Yanis Varoufakis said. AFP PHOTO / ARIS MESSINISARIS MESSINIS/AFP/Getty Images
Pro-European Union protesters hold EU and Greek flags and placards reading ''yes'' during a demonstration in Thessaloniki on July 2, 2015. Greece's government and international creditors raised the stakes on July 2 over a weekend referendum seen as decisive for the nearly insolvent EU country's political and financial future. While Prime Minister Alexis Tsipras has urged Greeks to vote 'No' to the austerity measures demanded by international creditors, opposition parties including the centre-right New Democracy are campaigning for a 'Yes' vote in the referendum on July 5. AFP PHOTO / SAKIS MITROLIDISSAKIS MITROLIDIS/AFP/Getty Images
A dog holds a flag reading ''yes'' during a demonstration of pro-European Union supporters in Thessaloniki on July 2, 2015. Greece's government and international creditors raised the stakes on July 2 over a weekend referendum seen as decisive for the nearly insolvent EU country's political and financial future. While Prime Minister Alexis Tsipras has urged Greeks to vote 'No' to the austerity measures demanded by international creditors, opposition parties including the centre-right New Democracy are campaigning for a 'Yes' vote in the referendum on July 5. AFP PHOTO / SAKIS MITROLIDISSAKIS MITROLIDIS/AFP/Getty Images
A young boy holds a KKE flag during a demonstration of the supporters of the Greece's anti-European communist party (KKE), in Athens on July 2, 2015. General Secretary of KKE called his party's supporters to vote with an invalid ballot at the referundum of July 5. The radical left government of Prime Minister Alexis Tsipras "may very well" resign if Greeks spurn its call to vote 'No' in the plebiscite, Finance Minister Yanis Varoufakis said. AFP PHOTO / ARIS MESSINISARIS MESSINIS/AFP/Getty Images
Pro-European Union protesters hold EU and Greek flags and placards reading ''yes'' during a demonstration in Thessaloniki on July 2, 2015. Greece's government and international creditors raised the stakes on July 2 over a weekend referendum seen as decisive for the nearly insolvent EU country's political and financial future. While Prime Minister Alexis Tsipras has urged Greeks to vote 'No' to the austerity measures demanded by international creditors, opposition parties including the centre-right New Democracy are campaigning for a 'Yes' vote in the referendum on July 5. AFP PHOTO / SAKIS MITROLIDISSAKIS MITROLIDIS/AFP/Getty Images
Pro-European Union protesters select placards reading ''yes'' during a demonstration in Thessaloniki on July 2, 2015. Greece's government and international creditors raised the stakes on July 2 over a weekend referendum seen as decisive for the nearly insolvent EU country's political and financial future. While Prime Minister Alexis Tsipras has urged Greeks to vote 'No' to the austerity measures demanded by international creditors, opposition parties including the centre-right New Democracy are campaigning for a 'Yes' vote in the referendum on July 5. AFP PHOTO / SAKIS MITROLIDISSAKIS MITROLIDIS/AFP/Getty Images
A pro-European Union protester holds an EU flag and a placard reading ''yes'' during a demonstration in Thessaloniki on July 2, 2015. Greece's government and international creditors raised the stakes on July 2 over a weekend referendum seen as decisive for the nearly insolvent EU country's political and financial future. While Prime Minister Alexis Tsipras has urged Greeks to vote 'No' to the austerity measures demanded by international creditors, opposition parties including the centre-right New Democracy are campaigning for a 'Yes' vote in the referendum on July 5. AFP PHOTO / SAKIS MITROLIDISSAKIS MITROLIDIS/AFP/Getty Images
Pro-European Union protesters hold flags ans placards reading ''yes'' during a demonstration in Thessaloniki on July 2, 2015. Greece's government and international creditors raised the stakes on July 2 over a weekend referendum seen as decisive for the nearly insolvent EU country's political and financial future. While Prime Minister Alexis Tsipras has urged Greeks to vote 'No' to the austerity measures demanded by international creditors, opposition parties including the centre-right New Democracy are campaigning for a 'Yes' vote in the referendum on July 5. AFP PHOTO / SAKIS MITROLIDISSAKIS MITROLIDIS/AFP/Getty Images
Anti-EU protesters hang a banner which translates as ''No to austerity, no to fear'' from Lycabettus hill in Athens on July 2, 2015. Greece's radical left government suggested it would resign if it fails to get its way in a make-or-break referendum July 5 that could decide the country's financial future. AFP PHOTO / EUROKINISSI / Antonis NikolopoulosAntonis Nikolopoulos/AFP/Getty Images
This handout picture received from the Greek Ministry of Defence shows Greek Prime Minister Alexis Tsipras (L) meeting with leader of the Independent Greeks party and Defence Minister, Panos Kamenos, at the Defence Ministry in Athens on July 2, 2015. Greece's radical left government suggested it would resign if it fails to get its way in a make-or-break referendum July 5 that could decide the country's financial future. AFP PHOTO / POOL / Greek Ministry of DefenceHO/AFP/Getty Images
Leftist protesters march in central Athens after occupying the European parliament offices in Athens, on July 2, 2015. Greece's Prime Minister Alexis Tsipras said Thursday his country would remain united after the upcoming referendum, rejecting concerns the vote on bailout measures is splitting the country in two. AFP PHOTO/ Louisa GouliamakiLOUISA GOULIAMAKI/AFP/Getty Images
Leftist protesters try to burn a European Union flag in front of the European Commission offices in Athens on July 2, 2015. Greece's Prime Minister Alexis Tsipras said on July 2 his country would remain united after the upcoming referendum, rejecting concerns the vote on bailout measures is splitting the country in two. AFP PHOTO/ LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
Leftist protesters try to burn a European Union flag in front of the European Commission offices in Athens on July 2, 2015. Greece's Prime Minister Alexis Tsipras said on July 2 his country would remain united after the upcoming referendum, rejecting concerns the vote on bailout measures is splitting the country in two. AFP PHOTO/ LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
Municipal workers carry ballot boxes into a warehouse in Athens on July 2, 2015, in preparation for the upcoming referendum on austerity. Greek Prime Minister Alexis Tsipras vowed to press ahead with a controversial bailout referendum as European leaders ruled out any fresh debt offer before Sunday's vote.AFP PHOTO / Angelos TzortzinisANGELOS TZORTZINIS/AFP/Getty Images
Municipal workers store booths in a warehouse in Athens on July 2, 2015, in preparation for the upcoming referendum on austerity. Greek Prime Minister Alexis Tsipras vowed to press ahead with a controversial bailout referendum as European leaders ruled out any fresh debt offer before Sunday's vote.AFP PHOTO / Angelos TzortzinisANGELOS TZORTZINIS/AFP/Getty Images
Pensioners wait outside a National Bank branch in Thessaloniki on July 2, 2015, as banks only opened to allow pensioners without bank cards to withdraw 120 euros ($133) from their pensions to last them the rest of the week. Amid capital controls and lines of customers withdrawing as much cash as limits allow, the National Bank of Greece on July 2 stressed it was accepting euro deposits at all its ATMs. Greece's radical left government suggested it would resign if it fails to get its way in a make-or-break referendum July 5 that could decide the country's financial future. AFP PHOTO / SAKIS MITROLIDISSAKIS MITROLIDIS/AFP/Getty Images
Greece's Finance Minister Yanis Varoufakis puts on his motorbike helmet as he leaves his office in Athens, Wednesday, July 1, 2015. About 1,000 bank branches around the country were ordered by the government to reopen Wednesday to help desperate pensioners without ATM cards cash up to 120 euros ($134) from their retirement checks. Eurozone finance ministers were set to weigh Greece's latest proposal for aid Wednesday. (AP Photo/Daniel Ochoa de Olza)
Greece's Finance Minister Yanis Varoufakis speaks to the assembled media as he leaves his office in Athens, Wednesday, July 1, 2015. About 1,000 bank branches around the country were ordered by the government to reopen Wednesday to help desperate pensioners without ATM cards cash up to 120 euros ($134) from their retirement checks. Eurozone finance ministers were set to weigh Greece's latest proposal for aid Wednesday. (AP Photo/Daniel Ochoa de Olza)
ATHENS, GREECE - JULY 02: Greek Communist Party supporters listen to speeches during a rally in Syntagma Square near the Parliament on July 2, 2015 in Athens, Greece. As people continue to queue outside banks Greek finance minister Yanis Varoufakis said that he will quit if voters don't back him up in Sunday's referendum. (Photo by Christopher Furlong/Getty Images)
ATHENS, GREECE - JULY 02: Greek Communist Party supporters listen to speeches during a rally in Syntagma Square near the Parliament on July 2, 2015 in Athens, Greece. As people continue to queue outside banks Greek finance minister Yanis Varoufakis said that he will quit if voters don't back him up in Sunday's referendum. (Photo by Christopher Furlong/Getty Images)
ATHENS, GREECE - JULY 02: Two men sit outside a money exchange office in Syntagma Square near the parliament on July 2, 2015 in Athens, Greece. As people continue to queue outside banks Greek finance minister Yanis Varoufakis said that he will quit if voters don't back him up in Sunday's referendum. (Photo by Christopher Furlong/Getty Images)
ATHENS, GREECE - JULY 02: Commuters make their way home past people queueing at a cash machine on July 2, 2015 in Athens, Greece. As people continue to queue outside banks Greek finance minister Yanis Varoufakis said that he will quit if voters don't back him up in Sunday's referendum. (Photo by Christopher Furlong/Getty Images)
ATHENS, GREECE - JULY 2: Pensioners line up outside a National Bank branch on July 2, 2015 in Athens, Greece. As people continue to queue outside banks Greek finance minister Yanis Varoufakis said that he will quit if voters don't back him up in Sunday's referendum. (Photo by Milos Bicanski/Getty Images)
Demonstrators during a rally in Athens, Greece, 29 June 2015. (Photo by Milos Bicanski/Getty)
Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
Protesters stand behind a huge greek flag in front of the greek parliament in central Athens, on June 29, 2015. Some 17,000 people took to the streets of Athens and Thessalonique to say 'No' to the latest offer of a bailout deal Monday, accusing Greece's international creditors of blackmail. AFP PHOTO / LOUISA GOULIAMAKILOUISA GOULIAMAKI/AFP/Getty Images
Greece's Prime Minister Alexis Tsipras prepares for a TV interview at the State Television (ERT) in Athens, Monday, June 29, 2015. Anxious pensioners swarmed closed bank branches Monday and long lines snaked at ATMs as Greeks endured the first day of serious controls on their daily economic lives ahead of a July 5 referendum that could determine whether the country has to ditch the euro currency and return to the drachma. (AP Photo/Thanassis Stavrakis)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)
ATHENS, GREECE - JUNE 29: Demonstrators during a rally in Athens, Greece, 29 June 2015. Greek voters will decide in a referendum next Sunday on whether their government should accept an economic reform package put forth by Greece's creditor. Greece has imposed capital controls with the banks being closed untill the referendum. (Photo by Milos Bicanski/Getty Images)

The next step from the ECB could be to cut off funding altogether, which would make the banks insolvent. If the Greek banking system is faced with meltdown many experts think the country would ultimately leave the eurozone.

 

Q | Why are the financial markets not panicking?


A | Shares did fall across most of Europe. The Greek stock market was suspended of course. The euro slipped in value against the dollar and sterling. And bond yields in other vulnerable eurozone countries such as Italy and Spain ticked up.  Yet the movements were all small relative to some of the violent swings in markets we’ve seen in recent years.

The reason is that most investors appear to think the mess in Greece is unlikely to create “contagion” in the rest of the eurozone. This is partly because European banks and investors have been steadily reducing their exposure to Greece over the past five years.

And it is partly because the European Central Bank’s president, Mario Draghi, in 2012 promised to use its full powers to protect reforming economies such as Italy, Spain and Portugal from attack by speculators.

 

Q | What does it mean to be in default?


A | Technically, the IMF suggests Greece will be in “arrears”, rather than in default. This means Athens would need to pay off those arrears before accessing any further support from the Fund.

The question is whether the European Central Bank will deem the arrears effectively the same as a default.

The ECB funds struggling Greek banks by allowing them to swap their holdings of Greek sovereign bonds for euros. If it judges those sovereign bonds to be compromised because of the IMF arrears, or because Greece is no longer in an official bailout programme, it could refuse to accept them as collateral, effectively cutting Greek banks off at the knees.

 

Q | What happens next?

 

A | Even if the ECB does not cut off Greek banks, it is likely to come under massive pressure to do so on 20 July when Greece is due to redeem €3.5bn of sovereign bonds held by the ECB.

Unlike the IMF repayment there would be no ambiguity about a failure to make this payment: it would be a straight default. And Greece, unless it quickly does a deal with its creditors, will be unable to make that payment. Another €3bn ECB bond payment is due on 20 August.

 

Q | When will Greeks be able to access their accounts?

 

A | A good deal hinges on how Greeks vote in the 5 July referendum. If a majority vote to accept the austerity and reform terms demanded by the eurozone and the IMF, then it is just conceivable that there could be deal after all – meaning that the threat of collapse would recede and the banks could allow Greeks to access their money in a matter of weeks.

Some eurozone officials hinted that a Yes vote would see talks restart. But if the Greeks vote No then it is likely to be a long time before the country’s banks function normally.

Capital controls imposed on Cyprus in 2013 were only lifted after two years. And there is a possibility that when Greece’s capital controls are eased depositors could find their money denominated in drachmas, and worth considerably less in real terms.

 

Q | Does it mean Greece will leave the euro?

 

A | Not necessarily. Even if Greece defaults and reintroduces its own currency again there is no automatic procedure for ejecting Greece from the single currency.

Yet if Greece were unable to tap funding from the European Central Bank and were using its own currency, Greece would be gaining little benefit from membership of the euro.

The head of the European Commission, Jean Claude Juncker, suggested a No vote in Sunday’s referendum would also result in Greece leaving the EU.

But however difficult Greece’s relations would become with the rest of the EU there exists no legal basis for ejecting the country from it.

 

Q | Can the Greek economy prosper outside the euro?

 

A | That is hard to answer. Economic theory suggests depressed states get a boost when they devalue their currencies because their exports instantly become more competitive. This is what happened to Britain when we left the European exchange rate mechanism in 1992. Argentina got a similar export boost when it broke its currency’s long-standing dollar peg in 2002.

But Greece is not a very strong exporting nation. Overseas sales of goods and services are relatively low relative to the country’s GDP. Greece’s top export is refined petroleum, which is priced in dollars and it relies on imported oil, which is also priced in dollars, all meaning that this industry would get little benefit from depreciation.

However, Greece also has quite a large tourist sector, worth about 15 per cent of GDP, which would certainly benefit from a devaluation. But set against that is the severe financial and social pain that would inevitably result from leaving the euro as the public confront the fact that their savings have been devalued at a stroke.

The Greek government could also try to ease the transition by printing money too liberally, creating damaging inflation.

 

Q | What does that mean for the euro?

 

A | The markets are betting that the eurozone will survive even if Greece leaves. Spain, which was in turmoil two years ago, is growing. Italy, also one of the bloc’s ailing giants, grew in the first quarter. Portugal is doing OK. But unemployment is still painfully high in all of these countries.

The established parties fear that the Greek crisis could energise anti-austerity movements in their own countries – such as Podemos in Spain and the Five Star Movement in Italy – which could join Syriza in upsetting the eurozone apple cart.

Independent

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