Greece’s National Bank has warned that unless the government reaches a deal with international lenders a financial Armageddon awaits the country, world press reports say.
Greece’s EU Future Doubtful if Talks Fail
Reuters – George Georgiopoulos and James Mackenzie
The Greek central bank warned on Wednesday that the country risks a painful exit from the euro and ultimately even the European Union if Athens and its creditors do not strike a swift aid-for-reforms deal.
The warning, contained in a regular monetary policy report from the central bank, underlined the extent to which officials who once refused any suggestion of “Grexit” are now openly discussing it and setting off the alarm bells.
Despite urgent pleas, including from the White House, there has been little sign of movement since talks between officials from Greece, the European Union, European Central Bank and International Monetary Fund collapsed on Sunday.
Athens has until the end of June to find a way out of the impasse before it faces a 1.6 billion euro ($1.8 billion) repayment due to the International Monetary Fund, potentially leaving it bankrupt and teetering on the edge of the euro zone.
“People are getting anxious on both sides. Athens expects Brussels to move. And Brussels expects Athens to move. And it’s stuck,” said a senior EU diplomat, who declined to be named. “It’s very dangerous, and we may have an accident.”
A top Greek negotiator told Reuters that Prime Minister Alexis Tsipras’ leftist government was ready to make unspecified concessions but he once again ruled out any cuts to pensions – a major sticking point in the negotiations.
Germany, Europe’s biggest economy, maintained its line that Greece had to make substantial moves to break the stalemate.
“It won’t work without Greece moving significantly,” German Foreign Minister Frank-Walter Steinmeier said in Berlin.
Greek negotiator Euclid Tsakalotos confirmed that Greece does not have the money to repay the IMF, but said the government would only accept a deal that was sustainable and addressed debt, financing and investment – issues the European Union has said it does not want to open at this stage.
“If you have that, then the Greek government will sign the deal,” Tsakalotos said. “If it doesn’t have that kind of deal there is no point in signing onto something that you know is going to fail.” …
“Failure to reach an agreement would … mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and, most likely, from the European Union,” the Bank of Greece said.
The comment drew an angry reaction from the ruling Syriza party which said Bank of Greece Governor Yannis Stournaras, a former conservative finance minister, had exceeded his authority and was trying to set “asphyxiating” limits on the government.
Greek Exit Would Shake, Not Shatter, Eurozone
The New York Times – Peter Eavis
It is the current doomsday scenario for Europe.
Greece’s bailout talks break down for good, and the country defaults. The European authorities sever life support to Greece’s banking sector, forcing the country to take drastic steps to stem an exodus of capital. Greece decides to drop the euro as its currency.
Greece’s unwinding sends shock waves through the global markets. Investors and policy makers have to quickly assess whether the storm is going to pass or gather strength.
Although Europe is better positioned to deal with a crisis than it was a few years ago, when Greece last teetered, there is simply no precedent for a country’s leaving the eurozone. And the big test may be only weeks away.
Relations between Greece and its lenders have descended into a bitter standoff. The impasse is increasing the chances that Greece and its creditors will fail to forge a deal by the end of the month, when a pile of debt comes due and its current bailout expires.
Many in Europe still believe that some sort of agreement will be reached at the last minute, unlocking fresh aid for the debt-burdened country and preventing a painful default.
But the war of words — and the apparent distance between both sides’ positions — is reducing hopes for a breakthrough. Instead, global financial firms and policy makers are asking what else might break down if Greece were to pull out of the eurozone.
On Wednesday, the Greek central bank said “a manageable debt crisis” would “snowball into an uncontrollable crisis, with great risks for the banking system and financial stability” of the country.
Many analysts agree that a Greek shock, for a few days, would stoke the sort of confusion and fear that prompts investors to pare back holdings of riskier stocks and bonds and instead pile into assets they see as havens.
“U.S. Treasuries will explode in price as people flee to safety there,” said John M. De Clue, a chief investment officer at U.S. Bank. “It will be the largest risk-off trade that we’ve seen in some time.”
Greece: The Ultimate Doomsday Scenario
Things in Greece are bad right now, and if its leaders make a misstep in the next few days, they’ll get a whole lot worse.
The Greek central bank, which manages the country’s money, is warning of a doomsday scenario if politicians fail to strike a deal with creditors.
The bank warned Wednesday of “an uncontrollable crisis” if the indebted country defaults, which would ultimately lead to it falling out of the eurozone.
“All this would imply deep recession, a dramatic decline in income levels [and] an exponential rise in unemployment,” it said in a statement. “From its position as a core member of Europe, Greece would see itself relegated to the rank of a poor country in the European South.”
Here’s where the country stands right now, and what could happen under this hellish scenario:
1. Collapsing GDP: The economy briefly emerged from a six-year depression last year but has fallen back into recession in the last two quarters as uncertainty over the country’s finances has returned. GDP is now 26% smaller than it was before the financial crisis of 2008.
The Greek central bank refused to speculate on exactly how bad things could get. But its warnings of a “deep recession” and “sharp slowdown in annual growth” show just how much is at stake.
2. Scared savers: Roughly 30 billion euros ($33.8 billion) was withdrawn from Greek bank accounts between October 2014 and April 2015, according to the central bank.
People are hoarding cash as they worry about the stability of the banking system, and moving money out of the country.
This capital flight has forced the banks to rely on the European Central Bank for emergency financing.
But that lifeline would be cut if the Greece government defaults on its debts this month. This would force the country to introduce rules on cash withdrawals (aka capital controls) to avoid a complete banking collapse.
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