Greek crisis standoff: five possible outcomes

It’s close to crunch time for Greece and its creditors. At issue is how to close €2bn gap in government budget after Athens refused to make further spending cuts.

The standoff between the EU commission and Greece must be resolved by the end of the month. Either Brussels releases the last €7.2bn (£5.14bn) of bailout cash due to Athens under its existing rescue deal or Greece goes bust. Here are the possible scenarios to how this may play out:

1. The creditors blink

It is possible the German chancellor, Angela Merkel, will persuade her fellow EU leaders on Monday that the European commission and the other creditors – the European Central Bank and International Monetary Fund – must keep the single currency together by agreeing a debt swap. This would trade in in old loans for new longer term ones and has been proposed by Athens because it would cut the interest rate on payments due over the next year. Athens says this would be worth €2bn and bring the budget into line with creditor demands.

2. Greece blinks

Athens could ditch its debt swap proposal and agree further spending cuts – but spread over a wider area of government expenditure. At the moment creditors are demanding big cuts to pensions, but Athens says that’s a no go. The Greek Prime Minister, Alexis Tsipras, could offer stricter limits on early retirement, trim other state budgets or extend VAT to new areas to find a further €2bn of savings. This would be a retreat for him but not a complete surrender.

3. Greece leaves the euro

If both sides refuse to move there is likely to be a run on the Greek banks. The ECB would likely stop supporting the banks, or threaten to do so. Athens would have to introduce capital controls to halt the flow of funds out of the country. At this stage, Greek departure from the single currency would not be inevitable. Athens would have a choice: fall into line and hope to scrap the capital controls, as Cyprus has done, or make plans for a new currency. Tsipras would probably hold a referendum before taking the big step of leaving the euro. This would take a minimum of two weeks. If the vote backs quitting the euro rather than more austerity – divorce proceedings begin.

4. The Greek government collapses

With the banking system paralyzed, Greece grinds to a halt. Capital controls prove economically damaging and politically toxic. The government struggles to produce an alternative currency to the euro. Employers are forced to close, creating more unemployment. Riots on the streets split the ruling Syriza party and parliament, forcing new elections and a new government, that accepts all the austerity measures demanded by Brussels in return for the €7.2bn.

5. The can is kicked down the road

EU leaders agree to temporarily supply Greece the funds needed to repay €1.6bn of debt to the IMF at the end of this month and other debt payments due later in the summer. Athens promises to embark on further economic reforms, to be monitored by the lenders. The delay allows time for talks to continue into the autumn in the hope that a compromise deal is agreed, but does not reduce Greece’s debt burden. Financial markets assume the crisis will reappear later in the year. They are right.

(Πηγή: theguardian.com)