According to a leaked document from the International Monetary Fund (IMF) that has been viewed by UK’s Channel 4 News, Greece will not be able to make the €1.56bn payment due to the IMF on June 5. The inability to pay has also been echoed by Nikos Voutsis, the Greek interior minister. The IMF document suggest that recent progress has been made during negotiations between Greece and its creditors; however, Greek negotiators have reportedly made it clear that a further deal is needed in order for the next IMF payment to be made.
A €3bn payment to the ECB is also scheduled for July and August. In order to unlock the remaining €7.2bn tranche of bailout funds which Greece now desperately requires, Eurozone finance ministers are demanding that its government draw up a list of additional internal reforms and austerity measures.
On May 11, the beleaguered Eurozone nation narrowly avoided a default by managing to collect enough funds to make the previous €750m IMF loan repayment. By the end of that week, Athens had also scraped together the €500bn or so required to pay half of its monthly public sector wage, pension and social security bill.
With no international financial assistance since last August, Greece has had to force more than 1,000 local authorities to hand over excess cash reserves to the central bank. More recently the Greek government has asked foreign embassies and consulates to do the same.
There still remains some uncertainty regarding the overall implications of a Greek default. Filippo Taddei, a key economic advisor to Italian Prime Minister Matteo Renzi, believes that a default does not equate to an exit from the euro. Indeed, Renzi stated that “plans are being set” within Europe to dampen any effects arising from such a situation, adding that it would be “…very hard to envisage a united currency without Greece.”
As far as investment opportunities resulting from a default are concerned, the New York Times identified two schools of thought that have arisen on this issue. Either chaos would ensue within European banks from the impact of contagion and bond markets would panic, or investors would move heavily into stock and bond markets after ECB intervention, supposing that a default or an exit from the euro would be a manageable situation.
Now it seems that few can really predict what the outcome will be, given the inordinate amount of analysis and speculation that has been conducted over the past 5 years. What this means for the rest of Europe is really not clear from the standpoint of immediate impact and the longer-term process necessary to rectify a default situation. What seems more certain in the final analysis, however, is that the ordinary people of Greece will continue to suffer as this anxious situation plays out.