The Eurozone set a Sunday deadline for Greece to get its fiscal affairs in order. The clock is ticking, with Greece approaching the critical July 20 deadline on its 3.5 billion euro bond repayment to the European Central Bank (ECB). This payment must be met in order to avoid Greek banks from collapsing. This will be Greece’s second default in a month, according to the Wall Street Journal. The first being the Hellenic Republic’s failure to honor a $1.5 billion euro debt repayment to the International Monetary Fund on June 30.
The International Monetary Fund is one of three bodies–the others including the European Central Bank and the European Commission–that make up the “troika,” which issued two bailouts to Greece totaling 240 billion euros, according to the New York Times’ cheat sheet on the crisis. This was done to avert immediate calamity, though it obviously hasn’t solved the long-term problem.
Chancellor Merkel is reportedly “not exaggeratedly optimistic” about a deal being made.
If no deal is made, and the 3.5 billion euro payment to the ECB isn’t honored, it could trigger Greece’s exit from the Euro (via WSJ):
A looming bond payment by Greece to the European Central Bank is emerging as the potentially decisive event in the country’s attempt to stay in the euro and avoid a banking collapse.On July 20, Greece must repay €3.5 billion ($3.8 billion) in bonds held by the European Central Bank. The Athens government doesn’t have the money and without a fresh infusion from its main creditors—other eurozone governments at this stage—it almost certainly won’t have it by then.
Greece’s failure to repay the ECB would lead to heavy pressure on the bank’s president, Mario Draghi, from his governing council to no longer accept Greek government-backed debt as collateral for emergency loans to the country’s banks. Short of alternative collateral, Greece’s banking system would face instant collapse if Athens, the ECB or the rest of the eurozone can’t find a workaround.
If Greece can’t finance its banks in euros, it would be forced to sustain them by using a national currency. That makes the withdrawal of ECB liquidity for banks a potential trigger for a Greek exit from the euro.
A top ECB official signaled the ECB would have little choice but to pull the plug on Greece’s banks if Athens fails to pay up on July 20. “That would be a state bankruptcy,” Austria’s central-bank head Ewald Nowotny said in an Austrian television interview Monday. “In this situation, it would no longer be possible for the ECB to provide further liquidity.”
But how fast the ECB would act isn’t clear from officials’ statements so far.
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Today, Greece requested a three-year bailout from the Eurozone, and agreed to some of the conditions:
Greece formally requested a three-year bailout from the eurozone’s rescue fund Wednesday and pledged to start implementing some of the overhauls demanded by creditors by early next week, according to a copy of the request seen by The Wall Street Journal.Crucially for Greece’s creditors, the letter says the government would start implementing some measures, including on taxation and pensions, by the beginning of next week, though it doesn’t go into details.
The letter is a first step toward fulfilling a demand by international creditors to come up with tougher measures in return for desperately needed financing that could keep the country from bankruptcy and even worse economic turmoil. The resistance by the government in Athens to implement economic-policy overhauls and budget cuts has held up a deal between the two sides for months, and raised the specter of an imminent Greek exit from the eurozone.
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Key differences still remain. In his first address to the full European Parliament in Strasbourg, Mr. Tsipras mixed conciliation with defiance, pointing to his countrymen’s resounding “no” vote in Sunday’s national referendum as evidence he has a fresh mandate to demand a good deal for Greece.
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Mr. Tsipras said his government would present concrete and detailed overhaul measures on Thursday. A spokeswoman for the EU said the deadline for Greece’s proposals was midnight.
The full list of overhauls and budget cuts is what will determine whether the application for a new rescue program will be approved by the rest of the eurozone. The currency union’s leaders will assess whether it makes sense to start formal negotiations on a bailout program at an emergency summit on Sunday.
So, now we wait.
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