News You Really Need To See: “What Would Happen If Greece Doesn’t Pay the IMF: Q&A”

“What Would Happen If Greece Doesn’t Pay the IMF: Q&A”

Bloomberg Businessweek, May 25, 2015

“Cash-strapped Greece needs to repay almost 1.6 billion euros ($1.76 billion) to the International Monetary Fund next month, an obligation Interior Minister Nikos Voutsis said the country can’t and won’t meet, if there’s no deal to unlock bailout funds in the meantime. … Greece has lost access to bond markets and relies on bailout loans from the euro area and the IMF to refinance its debt.  The country’s anti-austerity coalition is locked in talks with its creditors over the terms attached to those emergency loans.  Even though no aid disbursements have been made since last summer, the government has managed to meet external payments through a combination of measures, including budget under-execution, building up arrears to suppliers and vendors, overdue taxes settlement incentives, and seizing of cash reserves of regional governments, hospitals, universities, and even the country’s bank recapitalization fund, for use in short-term state financing operations. … A person with direct knowledge of the country’s liquidity position said Greece has enough cash at least for the payment due June 5.  A prompt payment then would buy Greek officials and representatives of creditor institutions another week of time to negotiate an agreement which will unlock bailout funds and solve the problem, before the next payment is due. … Failure to pay the IMF would entitle some of Greece’s other creditors, including the European bailout fund, to declare a default.  They would then have the option to demand immediate repayment of all their loans, a process known as acceleration.  Other lenders could then follow suit.  While calling a default preserves creditors’ claims, acceleration — the bit that hurts — isn’t automatic.  Each creditor decides on its own.  To varying degrees the debt is linked in a web of cross-default and cross-acceleration clauses that make it safe to assume that one default and acceleration would trigger demands for repayment on most, if not all, of the rest.”

Quickie analysis:  If you’ve been wondering why Greece’s debt problems are coming to a crisis point (again), here’s a detailed FAQ of the problem, the possibilities, and the consequences.

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