2015-04-17 08:27:45
By Paul Kirby BBC News
The Greek government is running out of time and money.
If it fails to come to a deal with eurozone partners on 24 April, there is a
real chance it could default on its loans.
That could push the Greek government towards leaving the single currency.
Is Greece about to default?
It feels as if we have been here before, but there is a growing belief that
without a deal on Greek reforms, the left-led Syriza government will run out of
cash.
Debt interest payments are piling up. It has to pay off an 80m interest bill
to the European Central Bank (ECB) on 20 April and 200m to the International
Monetary Fund (IMF) on 1 May.
But the one that is stirring jitters around Europe is a 760m ( 550m; $810m)
interest payment to the IMF that is due on 12 May.
IMF head Christine Lagarde has emphasised that Greece will not be allowed to
delay its repayments
Greece is faced with a difficult choice: either pay up its debts or continue to
fund pensions and public sector salaries. Already there are reports that the
Athens government has made a vain plea to delay its debt repayments to the IMF.
Can it stay afloat?
It is barely managing, denying reports that it has used reserves from the
health service to help pay off its debts, despite meeting its April payment to
the IMF of 448m.
For a populist, left-wing party like Syriza, swept to power on a wave of anger
at austerity, it will be difficult to stop paying pensions and the decision
appears inevitable.
Syriza swept to power vowing an end to austerity, but these public sectors want
Greece's debts written off too
Greece has already been rescued by two EU/IMF bailouts to the tune of 240bn
since 2010.
The aim of the 24 April talks is to unlock a 7.2bn bailout tranche. Even then
it might still need a third bailout worth tens of billions. But if Greece's
reform package fails to satisfy its creditors, there will be no new cash.
What if it does default?
Greek banks are already on life support. They are relying on 74bn in emergency
liquidity assistance (ELA) from the European Central Bank.
If the government defaults on its loans, it risks cutting off its liquidity
from the ECB, which is keeping both the banks and the government afloat.
A "forced default" would create a downward spiral.
Greek Prime Minister Alexis Tsipras remains confident that a deal can be done
to avert default
Tens of billions of euros have already been withdrawn from private and business
accounts and deposits could leave even faster.
To halt a run on the banks there might be a ban on withdrawals.
How serious for us is the Greek tragedy?
Does that mean Grexit?
Greece's future in the euro is looking so shaky that UK bookmaker William Hill
has stopped taking bets on the chances of a Grexit.
And a forced default, seen as the worst possible option, could plunge Greece
out of the euro.
The Bank of Greece would have to return to the drachma and Greeks would face
devaluation if they left the euro
"A forced default is where the coffers are empty, you stop paying employees and
say, 'We're using all our resources to pay the hospital bills'," says Prof Iain
Begg of the London School of Economics.
Greece would return to the drachma, suffer instant devaluation and inflation
and there would be a banking crisis.
It could end up a pariah in the international markets for years, much like
Argentina in 2002, warns Prof Begg.
Greeks want to stay in the single currency, but a forced default would likely
push them out.
Could Greece find help in Russia?
Is Grexit inevitable?
There could be a deal on 24 April that keeps the euros rolling in and maintains
the eurozone's lifeline to Athens.
It seems unlikely although, to many observers, both sides appear to be calling
each other's bluff - a high-stakes game of poker.
German Finance Minister Wolfgang Schaeuble says no-one has a clue how a deal
can be reached with Greece
However, even failure to find a deal would not necessarily mean forced default
or Grexit. Nor would missing its next debt payments.
For some economists, potentially the best option would be for Greece to pursue
a "managed default".
That could mean more relaxed and longer terms on servicing the debt on its
eurozone loans.
But it could also mean Greece remaining in the eurozone with strict capital
controls to stop money from flooding out of Greece.
One idea, reportedly under consideration in Germany, would be for the ECB to
continue funding Greek banks while considering them in default, in return for
strict guarantees for structural reform.
Greece would struggle to find creditors outside Europe - Schaeuble
Is there a risk of contagion?
The European Union has worked hard to cordon off the banking difficulties of
one member state from the other 27 and the idea no longer scares eurozone
partners such as Germany. But the IMF has warned that "risks and
vulnerabilities remain".
Default would mean a steep loss for the ECB, possibly 110bn for its exposure
to banks and around 20bn in the money spent on buying up Greek government
bonds.
As a central bank, the ECB could simply print the money to recapitalise itself,
but that is considered anathema to Germany.
Market contagion is difficult to predict, but there is also the potential of
political repercussions. Several governments with anti-euro movements will be
watching developments in Greece nervously.