Can Greece still avoid Grexit?
When eurozone finance ministers emerged from a meeting without their Greek counterpart, Yanis Varoufakis, on Saturday night, they reminded everyone that Greece remained inside the EU’s common currency.
“It is clear: Greece remains a member of the eurozone,” said Wolfgang Schäuble, the German finance minister. “Moreover, Greece remains a part of Europe.”
On Sunday, instead of cutting off emergency loans keeping Greek banks alive, the European Central Bank capped them at €89bn. This means the banks can no longer pay depositors who want to withdraw their money — but critically it means they do not go bust.
A bank holiday will now likely be needed, but if the Greek government can find a way out of the current mess, the banks could still reopen with euros in their accounts. If the ECB were to cut off emergency loans entirely then a collapsed banking system would need to be reopened with a new currency — and Grexit would likely occur.
“If you look at the last week, each day has had its surprise,” Pierre Moscovici, the European Commission’s economic chief, said in an interview on why he remains hopeful a deal can still be struck.
But things would have to change quickly in Athens once the country’s bailout expires Tuesday, according to eurozone officials. They said the nature of the Greek stand-off fundamentally changes starting July 1.
“After June 30, we move into a new phase of negotiations,” said one senior official.
The most immediate hurdle facing Athens is a €1.5bn loan repayment it owes the International Monetary Fund on Tuesday. Without bailout funds, it is likely to default. But in practical terms, an IMF default may not really mean much when it comes to staying in the euro.
Credit rating agencies have already said they will not consider non-payment to the IMF a proper default, since they only care about debts owed to private creditors.
While eurozone bailout loan agreements allow Greece’s EU lenders to trigger cross-default clauses if the IMF is not paid — an issue that was discussed at Saturday’s eurogroup meeting — it appears unlikely national governments will move in that direction. The ECB decision on Sunday signals that they are also willing to let the IMF “arrears” pass unremarked.
That could mean Greece goes into next Sunday’s referendum with banks closed, but without the need to start printing new money. Alexis Tsipras, the Greek prime minister, has said a “yes” vote in the plebiscite — even though he is actively campaigning for a “no” — would lead his government to agree to creditors’ demands.
But that would still present Athens with two challenges. First, Jeroen Dijsselbloem, the Dutch finance minister who chairs the eurogroup, said Mr Tsipras’ denunciation of the creditors’ plan makes it unlikely eurozone governments will trust the current Greek administration to implement it.
“If a ‘yes’, who are we trusting, who are we working with to then implement that programme?” Mr Dijsselbloem asked.
This weekend, for the first time, Mr Varoufakis hinted his government was prepared to reshuffle cabinet posts or even coalition members if that was required to win back trust.
“If the people give us a clear instruction to sign up on the institutions’ proposals, we shall do whatever it takes to do so — even if it means a reconfigured government,” he told the eurogroup on Saturday.
Some within Mr Tsipras’ Syriza party have even suggested the government would resign if it lost Sunday’s vote. That could clear the way for a technocratic government akin to the one that government amid Greece’s last debt crisis in 2011.
Eurozone officials said even a non-Syriza government could face difficulties. Due to the bailout expiration on Tuesday, any post-referendum government will need to request a completely new programme. Under the treaty governing bailouts this would require the approval of all eurozone governments. In Germany’s case, that would require a Bundestag vote.
The new government would have to negotiate an entirely new rescue package — although officials acknowledge the current offer could serve as the basis for a fresh bailout.
All this would likely need to be completed by July 20, when Greece owes the ECB €3.5bn for a bond repayment. Defaulting on the ECB would almost certainly end all hopes of securing a new bailout and avoiding Grexit.
“Despite the referendum, there remain multiple pathways to a deal,” said Mujtaba Rahman, head of European analysis at the Eurasia Group risk consultancy. “It’s only in the run up to a potential ECB default that preventing Grexit becomes incredibly difficult.”