Greece has failed to make the payment to the International Monetary Fund which was due at midnight Brussels time (11pm London, 6pm E.S.T.). If the IMF declares the non-payment a default then Greece becomes the first developed European country in 71 years of the IMF to join the club of defaulters, enjoying the illustrious company of the likes of Sudan, Zimbabwe and Somalia.
At the same time as the possible default, the second European bailout package has now expired and tomorrow Greece, for the first time in five years, will operate without a financial safety net. What has in recent weeks become a cash economy may degenerate further as Greek bank account holders drain the banks of euros to protect against a potential conversion back to the Greek Drachma.
The IMF does not have to declare failure to pay a default, it can just cover its eyes and wait to see if a solution arises, so negotiations will continue. The real drop dead date is the 20 July when payment is due to the European Central Bank (ECB). If default has not been declared before that date and payment to the ECB is not forthcoming then Eurogeddon is upon us.
Greece wants a whole new debt package, their third, not just an extension of the current bailout but a reformed two year finance package and written down debt. Although this was rejected earlier this evening by the Eurogroup of finance ministers the have agreed to reconvene tomorrow morning.
Some are saying the poker game has become too tense, too risky, and Greece is in the mood to compromise. The BBC Newsnight Programme has even suggested the Syriza government may consider cancelling their referendum on the bailout terms due to take place on Sunday.
In other developments Fitch, the ratings agency, downgraded Greece’s credit rating by one notch from CCC to CC earlier this evening. Following S&P’s downgrade to CC on Monday the Fitch rating is now just one point above what is deemed to be a certain default. In other words they now believe there is a much higher danger of Greece defaulting on debt owed to private creditors and not just the IMF or ECB. Fitch said:
“The breakdown of the negotiations between the Greek government and its creditors has significantly increased the risk that Greece will not be able to honour its debt obligations in the coming months, including bonds held by the private sector. We now view a default on government debt held by private creditors as probable. Recent events have taken us beyond our previous base case that a deal would be struck before the expiry of the programme.”
Whatever happens in the next hours, days and weeks Greece has never been closer to falling out of the Eurozone.
COMMENTS
Please let us know if you're having issues with commenting.