LONDON: Although the risk of Greece becoming the first country to default on the IMF is high, a Greek Eurozone exit remains unlikely for now, according to senior analyst Blanka Kolenikova at IHS.
“Greece’s liquidity crisis is increasingly acute. Without access to bond markets, the country is reliant on the unblocking of EUR7.2 billion (USD8.17 billion) by Eurozone lenders to service debt repayments and current spending commitments including pensions and public-sector wages (which amount to approximately EUR1.7 billion). Greece will be facing large repayments in June, with a total of EUR1.6 billion due to the International Monetary Fund (the next IMF repayment will be on 5 June).
“There is a significant lack of transparency regarding Greece’s cash position and the risk of a default over the coming months is extremely high without the release of the official funds. However, it is noteworthy that a missed payment would not trigger a default immediately. Under IMF terms, a default would not be declared until payment is one month in arrears.” “Therefore, Greece could not technically be in default with the IMF until early July.”
“In the event of a missed payment, the European Central Bank’s (ECB) decision on whether to continue funding the Greek banking sector would be critical. The latest figures show Greek banks borrowing EUR107.2 billion from the ECB in March. Of this total, EUR68.1 billion was provided by the Bank of Greece through emergency liquidity assistance (ELA). ELA is given to solvent banks against “adequate collateral”. However, ECB rules are flexible and Greece’s access to the ELA and Greek banks’ ability to use European Financial Stability Facility bonds as collateral for the ECB’s liquidity operations will rest on Eurozone political consensus, which is likely to be tied to a clear programme of structural and economic reform from Greece.
“This would also be likely to increase government instability and protest and riot risks in Greece. Although pension and public-sector wage commitments are likely to be honoured, any delay to them would likely trigger large-scale nationwide strikes and potentially violent demonstrations.
“These protests would in turn put pressure on government stability, with the right-wing ruling coalition partner, the Independent Greeks (Anexartitoi Ellines: ANEL), likely to resign in order to distance itself from the policies of the Coalition of the Radical Left (Synaspismós Rizospastikís Aristerás: SYRIZA). Further resignations would also be likely from among SYRIZA’s more left-wing ranks, meaning that the party would lose its parliamentary majority and its ability to pass laws, making the prospect of another early election more likely.”