Greece looks set to enter uncharted waters this week, with the expiry tomorrow of its creditors’ offer of a new €15.3bn rescue loan in exchange for a package of austerity and structural reforms.
Here are the key issues it now faces as it lurches closer to becoming the first member state to leave the euro since the single currency was launched in 1999.
Greece closes banks to head off chaos as bailout talks break down
What are the next payment deadlines looming for Greece?
In the next few days, the government will have to make the usual monthly payments to pensioners and civil servants, as well as settling a €1.5bn loan repayment to the International Monetary Fund, which comes due on June 30.
Athens has already opted to bundle all the payments it had to make to the IMF this month into a single installment, using a clause last used by Zambia in the 1980s, meaning it has no third option between paying up and defaulting.
Ministers have already made clear they will prioritize paying pensioners and government employees over the IMF. Hence, in the absence of a deal, it is almost certain the Fund will not see its money back for now.
What does a default on the IMF imply?
The IMF rule book says that the managing director has 30 days to notify the board that Greece is in arrears. Greece will join a small group of states - including Cuba and Zimbabwe - that have built up arrears with the Fund and will not be able to receive any more financial help from Washington until these have been cleared. However, Athens will remain a member of the Fund.
Does a default on the IMF have implications for other creditors?
The credit rating agencies have already said that a failure to pay the IMF would not count as a default in their books, since they rate only private debt. So outstanding bonds would not be affected.
There are loans from the European Financial Stability Facility — the eurozone’s rescue fund - which have provisions allowing the EFSF board to force repayment in case of default. However, Klaus Regling, the EFSF chief executive, has said this option has not been discussed and eurozone officials believe this is unlikely.
What about the Greek banks?
The European Central Bank yesterday refrained from cutting off the banks from its emergency assistance, which would have implied their immediate resolution. However, it froze the amount of liquidity available at €89bn which is plainly insufficient to accommodate any bank run, forcing Greece to impose sweeping capital controls.
What happens if the banks are unable to meet depositors’ demands?
The banks are supervised by the ECB’s Single Supervisory Mechanism. It must declare if a bank is unable to meet its obligations and is approaching failure. While the SSM can withdraw a bank license, it is not empowered to handle a bank resolution.
Who is in charge of handling a bank failure?
Greece’s national bank resolution authority would be responsible. Greece has not yet passed the EU law on bank resolution and recovery, which sets a new framework for handling troubled banks. The situation would be handled under existing Greek law, which includes some limited powers to write down creditors. The European authorities involved would be the SSM and the European Commission.
Would there be cross-border financial fallout?
The exposure of EU banks to the Greek financial system is limited. But the Greek banks do have some subsidiaries and branches in Albania, Bulgaria, Cyprus, Romania, Serbia, Turkey and Macedonia. Some contingency measures have already been taken by authorities in those countries. But regulators are worried by spillover from a Greek default.