What happens if Greece can’t pay its debts?

The standoff between a leftwing government and the financial powers of the EU is near to breaking point. What if the worst happens?

This time it’s real: Greece has wriggled out of looming national bankruptcy on numerous occasions over the past five years, but now it has just a few weeks left before it must sign a new debt deal with its eurozone partners and the IMF – or find itself heading for an exit door that leads back to the drachma.

On Friday, after a meeting of eurozone finance ministers in the Latvian capital Riga, the signs were ominous. Malta’s finance minister Edward Scicluna, said: “I would describe today’s meeting as a complete breakdown in communication with Greece.”

In the tug-of-war over a deal, recent weeks have seen Brussels gain the upper hand. Even countries that began talks offering Varoufakis a sympathetic ear – the French, Italians and Dutch – have wearied of his lectures on Keynesian economics and how he would have handled the post-2008 banking crash differently. While not as hardline as the Germans, the Finns and the Spanish, all of which have finance ministers who would gladly see the back of Greece, the rest now talk privately of a post-Greece eurozone.

Athens is convinced it can hold out for a fresh deal – one way or another – until at least the end of June. The government of Alexis Tsipras has been using all means possible to make required repayments to its lenders, meet welfare bills and pay wages to civil servants, from sequestering cash from state-owned bodies to delaying paying bills for medical supplies. Officials insist they can lay their hands on enough cash to refinance outstanding loans due in the next two months while honouring welfare payments and public sector salary cheques. During this time a new negotiated settlement can be forged.

What if the government fails to pay £2bn of public sector wages on 1 May?

This prospect is unlikely after the coalition administration defeated rightwing opposition groups to force through a decree on Friday that now obliges state bodies and local authorities to transfer their cash reserves to the Bank of Greece.

What about more drastic measures?

If the cash runs out, Tsipras could pay workers and welfare payments and delay IMF payments. He has already asked for the IMF to accept a delay and been rebuffed. The IMF pointed out during its recent spring conference that any such delays will not be countenanced: it has not happened in 30 years, and prior to that only to the poorest of central African nations.

What happens when the exchequer runs dry?

A chess player, thinking a few moves ahead, would advise against missing any IMF payments because the lender of last resort to bankrupt nations would be the only institution capable of rescuing Greece if a Brussels deal fails.

If the cash runs out Tsipras will be forced to impose capital controls to prevent a flight of funds out of the Greek banks and into neighbouring countries as ATMs run dry.

The main players and where they stand


The Greek prime minister leads a government that fell just short of a majority in January elections after winning 36% of the vote. His Syriza party, which rules with the populist Independent Greeks party, draws strength from its own and supporters’ strong conviction that the country was badly treated by fellow euro members hell bent on making it pay back every cent of every loan. But conviction may not be enough to win the battle. Hardliners such as Panagiotis Lafazanis, the minister for productive recovery, energy and the environment, have cast themselves as enemies of capitalism and are reluctant to agree a deal at any price. Tsipras’s implied threat of a euro exit is undermined by a consistent majority of voters wanting to keep the currency, which may encourage Brussels to call his bluff.


Unrest inside the eurozone is an opportunity the Russian president is unlikely to miss. He welcomed Tsipras to Moscow a few weeks ago and hinted at aid for Greece should it leave the currency union. He has a war chest from years of oil tax receipts and would be happy to offer guarantees and loans for a deal that would upset Berlin and Washington, despite a domestic recession and the clamour from struggling state enterprises for extra cash. Greece is also a key Nato member and has a large army, which Putin would enjoy drawing closer to his sphere of influence.

Full article: What happens if Greece can’t pay its debts? (The Guardian)

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