On June 30, Greece has to pay 1.6 billion euros to the IMF. Unless its creditors disburse the 7.2 billion euros they’re holding pending an agreement, it can’t. Shortly after that, Greece will officially be in default to the IMF. No one knows what comes next, and the rhetoric has become more and more vitriolic. On Monday, there will be an emergency meeting of the eurozone leaders to try to resolve the standoff. It’s unlikely that they’ll resolve anything, though I suspect they’ll come up with some interim solution to buy time.
The frenzy of media attention to Greece is intensifying the unbelievable pressure most Greeks feel they are under—and, through strategic leaks, the pressure on the Syriza government to cave. The negotiations with the country’s creditors have come to seem purely symbolic: a power struggle like the chess game at the end of The Seventh Seal. I, too, hate the endless speculation, spinning and churning. I hate the pornography of suspense, the barely concealed schadenfreude, the way the real lives at stake disappear under a fog of acronyms and numbers and misused terms. (“Reform,” for instance, doesn’t mean the same thing as cuts and tax hikes.) But since it’s my job to weigh in, here are a few thoughts about why Armageddon may not be just around the corner.
First, while a default to the IMF would be extremely serious, it would not necessarily mean a Greek exit from the eurozone, nor would a Greek exit from the eurozone necessarily mean ejection from the European Union. There is no roadmap or precedent for either eventuality, despite the warnings of an “uncontrollable crisis” issued in his report to Parliament last week by Yannis Stournaras, governor of the National Bank of Greece and former finance minister of the conservative New Democracy government.
Second, the Financial Times reports that around 5 billion euros left the Greek banking system last week. This is also extremely serious. But there is no panic, and no queues at cash machines, despite leaked suggestions from eurozone finance ministers that the banks might not open on Monday. Many in the Greek government read such leaks as an attempt to tighten the screws on Syriza by speeding up the bank run.
Third, while eurozone officials and most of the international media continue to blame Greece for the stalemate, much less attention has been paid to long-standing disagreements between the IMF and Greece’s European creditors. The IMF has acknowledged that the austerity program in Greece has failed, and that debt relief or restructuring is needed. Debt relief is anathema to the Europeans, who would have to sell it to their own electorates. Hence the insistence on further cuts and tax raises, which are unacceptable to the Greek government and unenforceable in Greece.
Fourth, according to Reuters, an (unnamed) senior EU official has said that a default to the IMF doesn’t constitute a default to the eurozone. This may be a way of leaving the door open for further ECB assistance in case of a parting of ways with the IMF. The ECB has continued to provide a drip-feed of funds to Greek banks as the slow bleed that began when the election was called becomes a full-blown hemorrhage. Though there are more unpayable loans due in July to Greece’s European creditors, default to the IMF doesn’t necessarily mean bank collapse.