Dear PGM Capital Blog readers,
In this weekend’s blog edition we want to discuss with you the Time Line of Greece Debt Crisis since they have deferred the IMF payment due on June 4th, to next Tuesday June 30th.
THE IMF PULLED OUT OF TALKS ON JUNE 11:
The crisis intensified when, the International Monetary Fund (IMF) dramatically pulled out of talks with debt-stricken Greece on Thursday, June 11, after it accused Athens of failing to compromise over labour market and pension reforms.
The move left the Greek negotiating team with no option but to say it would also be leaving the talks and heading home to Athens.
On Thursday June 18, the head of the International Monetary Fund, Christine Lagarde said,
“Greece cannot delay paying its debt after a crucial meeting of eurozone finance ministers ended without a rescue deal being struck.“
Christine Lagarde, the IMF’s managing director, issued the threat as eurozone finance ministers gathered in Luxembourg to find an 11th hour solution in what was seen as Greece’s last chance to strike a deal with creditors to release bail-out cash and save its eurozone future.
Furthermore she said as she confirmed that the June 30 deadline for Greece’s repayment of €1.6 billion to the IMF remains definitive.;
“There is no grace period or two-month delay, as I have seen here and there”
TALKS WITH EU FAILED ON JUNE 14:
Talks on ending a deadlock between Greece and its international creditors have ended in failure on Sunday, June 14 with European leaders venting their frustration as Athens stumbles closer towards a debt default that threatens its future in the euro.
European Union officials blamed the collapse on Athens, saying it had failed to offer anything new to secure the funding it needs to repay €1.6 billon to the International Monetary Fund by the end of this month.
Greece said it was still ready to talk, but that EU and IMF officials had said they were not authorized to negotiate further. Athens insists it will never give in to demands for more pension and wage cuts.
The negotiations have become deadlocked as Greece has refused to meet the demands of Brussels, the ECB and the IMF. Greek Prime Minister Alexis Tsipras says he will not compromise on pension cuts, tax rises and targets for budget surplus in order to make interest payments.
The Greek delegation failed to convince the creditors to release the last tranche of 7.2 billion euros left in Greece’s 240 billion-euro bailout fund.
Hardline leftists of the Greece’s ruling party refuse to bow to EU creditors demands to implement austerity measures in return for the cash needed to keep Athens afloat and are working out how to go it alone after bankruptcy.
Prime minister Alexis Tsipras has also publicly warned that if creditors don’t change their stance, Greece is ready to take the plunge.
He said:
“If Europe wants the division and the perpetuation of servitude, we will take the plunge and issue a ‘BIG NO‘.“
The Belgian Finance Minister warned: “There is no free lunch being part of the euro zone. It requires discipline.”
BANK RUN STARTED ON JUNE 18:
One of the first outcomes of a Greek default is likely to be a run on the banks, as ordinary people, businesses and investors lose confidence in economy and move to get their cash amid fears national institutions will go bust.
This is exactly what happened on Thursday June 18, as the country edged closer to default despite assurances from Prime Minister Alexis Tsipras that the doomsayers are wrong, Greeks pulled more than 1 billion euros out of their banks in a single day, banking sources said on Friday June 19.
Including the billion withdrawn on Thursday, savers have pulled 3 billion euros (US$3.4 billion) from Greek banks since talks between Athens and its creditors collapsed at the weekend, the banking sources told Reuters. That represents about 2.2 per cent of household and corporate deposits at the end of April.
Below chart shows how Greece due to the run on the banks is becoming a cash economy.
The Greek central bank – which has warned that the country’s future in the euro and even the European Union is at risk unless the government strikes a deal with its creditors – tried to calm savers by saying that the banking system remained stable.
DEFAULT, GREXIT and BACK TO THE DRACHMA:
With no solid agreement, the Greek government is set to default on 1.6 billion euros ($1.8 billion) owed to the International Monetary Fund on Tuesday June 30th.
As Reuters notes:
“Its stricken banks have depended on emergency liquidity from the European Central Bank to stay open, and the banking system faces at the very least a further flood of withdrawals after billions have left in recent weeks.“
If Greece defaults on its debts, it is almost certain that it won’t be able to stay as a member state of the eurozone and will have to leave the euro.
This would likely mean a return to its previous currency the drachma.
At the moment, the Greek economy is in one of the worst recessions of all time and investors are dumping Greece stocks sending the Athens stock exchange to a 10-year low as can be seen from below chart.
But a change to a devalued currency could help the ailing economy because it would make Greek exports cheaper to neighbouring countries and help give them a boost.
However, as the Greek government has no cash – and a default would mean that few institutions or investors are likely to lend the government any cash – it could have to in effect print its own money.
This could cause Greek inflation to go through the roof and see ordinary families struggling to afford the basics needed to live.
PRIME MINISTER ALEXIS TSIPRAS CALL FOR REFERENDUM ON JULY 5:
In an unexpected move, Prime Minister Alexis Tsipras went on national television early Saturday, June 27 to call for a referendum on July 5, so that Greek citizens can decide whether to accept or reject the terms of a bailout deal proposed by the country’s creditors.
With his speech, Mr. Tsipras upends the stalemate in negotiations between Greece and its creditors, throwing into doubt whether Greece will be able to make a 1.6 billion euro debt payment that is due on Tuesday to the International Monetary Fund, while also deepening concerns that the beleaguered country could leave the eurozone.
As a consequence of this, in Greece, queues have formed outside banks and ATM’s amid concerns that the Greek central bank might start restricting Euros withdrawals.
A news agency reported that as a consequence of this a third of Greek ATMs ran out of cash to dispense on Saturday June 27.
The head of the International Monetary Fund, Christine Lagarde, told the BBC that because the European part of Greece’s bailout programme would have expired by 5 July, any referendum would relate to “proposals and arrangements which are no longer valid”.
But she said that if there was a “resounding ‘yes'” to staying in the eurozone, then the response would be “a resounding ‘let us try'”.
PGM CAPITAL COMMENTS:
To avoid bankruptcy, Athens urgently needs an €7.2 billion (US$ 8.1 billion) bailout loan but, despite months of talks, the Greek government has not been able to reach a deal with EU creditors over the terms attached to the money.
We believe that chances are that as people rush to the ATMs during this weekend, Greek banks may not open on Monday, June 29.
The gatekeepers of the cash – the IMF, the EC and European Central Bank (ECB) – want Greece to continue with austerity reforms.
But Greece’s Syriza governing party, which was elected to power in January, has consistently refused to accept the measures, which include a change to pensions and labour markets.
No progress has been made after five months of tough negotiations, between Greece and its creditors.
In order not to lose face the Greece prime minister Mr. Tsipras called for a referendum on July 5th, in which Greeks would be asked whether they wanted to accept or reject excoriating tax hikes and pension cuts that the EU, ECB and International Monetary Fund have set as a condition to release desperately needed bailout funds.
A silent detail in this is that the Eurozone finance ministers have rejected a Greek request to extend a bailout programme beyond 30 June.
The IMF managing director Ms. Christine Lagarde, in an interview with the BBC, also said a referendum scheduled in Greece for July 5 may be asking voters to weigh proposals that are no longer under consideration.
She said.
“So, at least legally speaking, the referendum will relate to proposals and arrangements that are no longer valid.”
If Greece doesn’t make the $1.7 billion payment due to the IMF on June 30, it won’t have access to funding until it clears up its debts, she said, reiterating the fund’s policy on arrears.
Negotiations could be revived if Greek voters show they want to stay in the euro zone, Lagarde said.
She also said;
“If there was a resounding ‘YES, we want to stay in the euro for good, we want to be part of that, we want to restore the status of the economy, we want to be sustainable in the long run,’ there would be a resounding ‘let us try,”
Last but not least as D-DAY approaches for Greece, we hope that the almighty illuminates the path of the Greece population and theirs leaders, and guide them for them to take the best decision with the future of your country and children in mind.
Until next week.
Yours sincerely,
Eric Panneflek