Wednesday

17th Aug 2022

Senior officials discuss Greek default

  • The possibility of Greece defaulting raises the prospect of Greece exiting the euro entirely. (Photo: Anders Sandberg)

Eurozone officials have, for the first time at senior level, discussed what would happen if Greece defaults on its payments.

Officials from the 19 euro countries’ finance ministries, including Greece, discussed the possibility at a meeting in Bratislava on Friday (12 June).

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"It was a preparation for the worst case. Countries wanted to know what was going on”, one official told the AFP news agency.

A second official said: “A default was mentioned as one of the scenarios that can happen when everything goes wrong”.

Reuters reports they also discussed two other scenarios.

One is that Greece and creditors agree, next week, on which reforms Greece will make in return for €7.2 billion in aid still available in its bailout programme.

The other is that they agree to extend the bailout, which expires on 30 June.

An EU official told Reuters the likelihood of the €7.2 billion deal is slim.

"It would require progress in a matter of days that has not been possible in weeks. The reaction [in Bratislava] of the ECB, the IMF and several member states was extremely sceptical," the official said, referring to the European Central Bank and the International Monetary Fund.

Greece, also on Friday, filed new reform proposals.

But according to a copy of the Greek non-paper, leaked online, it falls short of IMF demands on pension cuts.

It also harrangues the IMF for putting pressure on EU states.

Crunch moment

The crunch moment is here because Greece can’t pay €1.6 billion, which it owes the IMF by 30 June, on its own.

If eurozone finance ministers don’t agree to help when they meet in Luxembourg on 18 June, there won’t be time, for technical reasons, to help later.

For his part, Dutch finance minister Jeroen Dijsselbloem, who chairs the euro ministers’ meetings, said in The Hague on Friday that if Greece can't get the IMF on board the deal is off.

"If the IMF walks out - which they won’t, I'm sure - then part of the programme's financing will be gone and then we no longer have a base”.

“If the Greek government isn’t willing to take difficult measures, even if they’re unpopular, then Greece will never be saved", he added.

"We’ve repeatedly explained to the Greeks how little time there is.”

German chancellor Angela Merkel said in Berlin: “Where there’s a will there’s a way, but the will has to come from all sides. So it's important that we keep speaking with each other”.

Wisdom?

The possibility of Greece defaulting raises the prospect of Greece exiting the euro entirely.

The prevailing wisdom in Europe’s centre-right EPP political family, which counts Merkel as a member, is that financial markets could withstand the impact of a Greek exit.

But it would create political and security risk.

Greece holds a veto on many decisions in the EU Council and on all decisions at Nato, with the prospect of an isolated, failing state in either club causing concern.

Meanwhile, eurozone officials aren’t the only ones discussing a Greek crash.

Speaking to EUobserver in Brussels on Thursday, Nikola Gruevski, Macedonia's PM, noted: “If that happens, and I hope it doesn’t, there won’t be serious consequences [for Macedonia]”.

He added: “They [Greece] have two banks in Macedonia and, according to the rules of the central bank in Macedonia ... both banks aren’t able to transfer their capital to their mother banks in Greece”.

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