Greece: several different scenarios
LE MONDE ECONOMIE | • Updated | By Jean-Baptiste Chastand , Guélaud Claire , Claire Gatinois and Marie Charrel
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No quick agreement, Greece might not be able to repay the 1.6 billion euros owed to the International Monetary Fund (IMF) on June 30 A payment incident that could have dramatic consequences for Athens as for the euro area.Overview of issues.
- The capital control perspective
The Argentines had nicknamed the "corralito", the name of this small enclosure in which is enclosed livestock before taking him to the slaughterhouse. This means if capital controls, instituted in the bankrupt country in late 2001, was little appreciated. In case of financial crisis, the measure remains a necessary evil.Adopted during the Asian crisis of the 1990s in Malaysia or Thailand, Iceland in 2008 and Cyprus in 2013, restricting the outflow of money must avoid a "bank run" massive withdrawals of money that would lead to bankruptcy of banks and the drying of the economy.
By slowing withdrawals, it also seeks to stem the falling currency if the country does not belong to a monetary union and its currency is not, or more, pegged to another currency like the dollar.
Decided in an emergency, the device is rarely temporary (between six months and two years on average) and can drag on (up to six and a half years in Iceland). Restoring the free movement of capital requires indeed restore confidence of savers and investors stung. Faced with massive capital outflows in 2014 - 2015, Russia has avoided get there by leveraging its central bank to channel the fall of the ruble.
Last week, Greece, bank withdrawals would have amounted between 4 and 6 billion. Greece could therefore have no other option than "necessary evil".
- What does the IMF in the event of a payment incident?
The IMF Managing Director, Christine Lagarde, has said, there will be no grace period for Greece. In other words, the provisions in the event of incident of payment will be applied to the letter. They can theoretically lead within two years excluding the state concerned, subject to the approval of the Fund's Board of Directors, which has never happened. Of the 322 billion euros of Greek debt, the IMF holds 32 billion.
In its 2014 report on its financial transactions, the Fund said that in case of a payment incident, the administration asked the IMF country early settlement of its arrears. In the meantime, all access to IMF financial resources and any request for help are forbidden him.
In the months following the defective goods, the Director General or the Director General shall notify it to the board, including 24 directors representing 188 member states of the IMF.
"Given the large sums involved (EUR 1.6 billion over 9 billion owed by Greece in 2015 at the IMF), the statement on the board would be made soon," said the World Fund .
In the continued absence of payment of arrears, the Executive Director may, after two months, a complaint which is being examined by the Board of Directors in the following month. In general, access to general resources and the special drawing rights (SDRs) is suspended. A declaration of ineligibility may be taken in the year following the default communication then being made to all financial institutions in this regard.
The procedure follows its course in theory: declaration of non-cooperation and suspension of technical assistance after fifteen months; suspension of voting rights and representation a year and a half after the payment incident; excluding the IMF after two years. However, several countries, including Latin American, presented arrears, without ever having been excluded.
- Of default to the "Grexit"
This is the black scenario: if it does not pay its creditors, Greece may have to leave the eurozone. Indeed, without agreement with the "Troika" by June 30, Athens could be in selective default. The new tranche of 7.2 billion euros promised would then not paid. And the country can not repay the 1.6 billion euros it owes to the IMF. "Credit rating agencies will not automatically degrade the Greek rating, because the IMF is a separate creditor" says Diego Iscaro, economist at IHS Global Insight.
The Greek public finances have deteriorated in recent months so that even a new aid may not be enough. And reimbursement of € 3.5 billion due to the ECB on July 20 promises too delicate. "Whatever the scenario, the reaction of the ECB will be critical," Mr. Iscaro.
Greek banks survive only thanks to emergency funding ELA ("emergency liquidity assistance") granted by the ECB, through the Bank of Greece. A default, even partial, could lead the Mint to consider that Greek banks, which hold 23 billion euros of debt on public authorities of the country are no longer creditworthy. And suspend ELA, which soon suffocate the Hellenic banks.
Besides the introduction of capital controls, the Tsipras government could then consider several options to address the liquidity crisis. "The first would be to pay retirees and employees with IOUs, which are accepted for payment of taxes and everyday purchases, "said Eric Dor, an economist at IESEG. If its use is temporary, this form of parallel currency would provide additional time to negotiate with the country's partners. In this case, the default would not automatically lead to "Grexit".
Second option, convert the results of Greek banks in new currency - the drachma - with which the Bank of Greece would finance so banks. Private and public debt subject to Greek law and salaries, rents and prices in trade would also converted. But such a measure would be in panic and would be accompanied by huge legal uncertainties. The reintroduction of the drachma would amount to a de facto exit from the eurozone.
The trouble is that there is no procedure on the Community Treaties to exit the monetary union or expel a member. In other words: a "Grexit" organized and taking place in the calm would be unlikely.
- The consequences of a "Grexit" for the euro area
Never has a country is out of the euro zone - is also not foreseen by the Treaties. If Greece were to abandon the single currency, the financial consequences would be limited, however. The risk of contagion to other countries, such as Spain and Portugal, is in fact much less than in 2012 when the euro area had no instrument of solidarity. Since the establishment of the European Stability Mechanism (ESM) and debt buyback programs by the ECB should avoid Greek default that do delve elsewhere.
On a political level, a "Grexit" would have devastating consequences on the other hand. This would show that European integration is not irreversible. The European Union, already challenged by anti-European parties up across the continent, still come out a little more destabilized. A political fragility that could weaken the confidence of financial markets in the single currency.
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Marie Charrel
Journalist macroeconomics / monetary policyFollow Go this journalist journalist Follow on twitter
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