ANNO XIV Dicembre 2020.  Direttore Umberto Calabrese

Sabato, 27 Giugno 2015 16:28

Scenario planning for aftermath of Greek default

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Rome  - Until a few months ago, to hint at a Greek default was off limits: a scenario that top-ranking officials at institutions involved in the feverish negotiations on Athens's debts refused even to take into consideration.


  However, as negotiations get more and more complex with the passing of hours, it is impossible to go on hiding one's head in the sand. Athens is due to repay the IMF 1.6 billion euros by Tuesday next. Should Athens fail to pay, two weeks after the end-of-the-month deadline, the Washington-based Institution would send Greece a reminder and, after a further two weeks without receiving the amount due, the IMF's managing director would inform the executive board of the debtor's state of formal insolvency. At this point the other creditors would be entitled to ask for immediate settlement of notes and other instruments held by Athens, which sits on a pile of debt totaling more than 310 billion euros. At the same time, credit default swap contracts would kick in. Greece's only source of liquidity at present is the funds provided to Greek banks by the European Central Bank (ECB) under the Emergency Liquidity Assistance (ELA) provision. These funds are subsequently re-invested by the banks to buy Government bonds and could no longer be used if the banks were to be considered insolvent and their collateral inadequately guaranteed. A suspension in the flow of ELA funds would trigger a bank run (already underway), which would crush the Greek banking sector. It is not even certain that eventual control imposed over short-term financial flows could be effective, in view of the huge size of this country's underground economy. One thing is sure however: such an event would unleash a chain reaction whose consequences, too complex to foresee, would ultimately deliver a terminal blow to the Greek economy devastated by years of spendthrift waste followed by a period of too rigid austerity measures. Greece's default could also automatically trigger the 'Grexit', an exit from the eurozone, whose consequences would be even less predictable and even more difficult to quantify. The only unarguable fact is that neither Brussels, nor Washington, nor Frankfurt can continue to pretend, as they seem to have done over these past long and unsuccessful months of negotiations, that the problem does not exist. (AGI)

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