01 Jul 2015 09:01

The Greece crisis, what's next after missed payment?

The deadline passed and as expected Greece “defaulted” when it failed to make the payment of 1.5 billion euros to the International Monetary Fund (IMF). IMO noted in a brief statement that the repayment has not been made. What happens now? SEB´s chief economist Robert Bergqvist comments the development.

 

1. What happened at midnight?
It was both an expected and historical event. Greece ”defaulted” when it failed to make the payment of 1.5 billion euros to the International Monetary Fund (IMF). Furthermore, the latest bail-out program expired as well. It is a unique situation for the world that a developed economy, also an EU country and a member of EU’s currency union, does not fulfil its obligations.

2. Do we have a Greek bankruptcy?
The IMF notes very briefly in its statement that the repayment has not been made and provides very little information about what is the next step. However, the impression is that the IMF seems to believe that there is some room for new negotiations if Greece shows willingness to cooperate.

3. Was there any room for a deal before the deadline was passed?
In a last-minute move, Greece put forward a request for, in addition to an extension of the existing program, a third bail-out program (the first and second ones have given Greece loans of 240 billion euros and a debt write-down of about 65 percent of GDP). The Eurogroup rejected the Greek request for a program extension but it will resume its discussions at 11.30 CEST to evaluate conditions for providing a third rescue package for Greece.

 

4. What does the third rescue package to Greece include?
Greece is requesting a two-year program with additional loans of about 30 billion euros, loans that are likely to come only from other euro area countries (ESM)  and not the IMF. The IMF’s (read: the US/China) frustration is great over Europe's recurrent crises and IMF wants EU/euro zone to finally take care of their own problems. New loans should cover all maturing payments by Greece over the next two years. The package also contains a request for debt restructuring. A third bail-out program will require old and new countermeasures from Greece.

5. Is it possible to reach a new agreement?
Three factors could jeopardise a new deal. Firstly, there is now a strong distrust between Greece and the international creditors after Athens many surprising steps in recent days. Secondly, new and sizeable emergency loan and debt restructuring may find it difficult to get approval from euro/national parliaments, including the German Bundestag. Thirdly, Prime Minister Tsipras unpredictability has proven to be a big obstacle to find a new agreement.

6. Can the European Central Bank continue with its emergency lending to Greece?
ECB's Board meets today Wednesday to decide whether Greece's ‘default’ means that the ECB, according to its regulation, must withdraw 90 billion euro from the banking system. However, it is likely that the ECB, if it believes that there are prospects for new settlements, will await the IMF's continued progress and definitely not do anything until at least after we have the results of a referendum.

 

7. Is the referendum on Sunday still on the agenda?
It is not certain, but the main scenario remains that it is held as scheduled on 5 July. It would give the Greeks an opportunity to have their say, but it is important that the YES side (yes to the crisis package) gets a very clear support. The outcome is not given but irrespective of the outcome it will be a political crisis for PM Tsipras.

8. So what is the main scenario?
There is still a glimmer of hope in the dark tunnel. Greece has the last 24 hours shown some signs of trying to find a solution. Now it is up Athens and the Tsipras government to show if it is possible.