What next for Greece? A look at its options in coming days

Jun 3, 2015, 11:25 AM
Drachma notes and coins, Greece’s national currency before adopting the Euro, are displayed f...
Drachma notes and coins, Greece's national currency before adopting the Euro, are displayed for sale at a street market in Athens, Greece, Wednesday, June 3, 2015. Greece's prime minister was heading to high-level meetings in Brussels on Wednesday to try to persuade the country's creditors to accept a proposal that might unlock much-delayed bailout loans and save the country from financial disaster. (AP Photo/Petros Giannakouris)
(AP Photo/Petros Giannakouris)

ATHENS, Greece (AP) — Greece’s bailout talks are going down to the wire.

The country faces debt repayments this month — starting Friday — and it is not clear how much of them it has money left to cover.

A default could lead Greece out of the euro, the currency used by 19 of the European Union’s 28 members. A country has never left the euro before, so such an event would put Europe and the global economy in uncharted waters.

As Greece and its creditors — the other eurozone states, the International Monetary Fund, and European Central Bank — remain locked in talks, here are some questions and answers on what might happen next.

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CAN GREECE REACH A DEAL BY FRIDAY?

It’s possible.

Though creditors are skeptical, the prime minister is holding a flurry of meetings with European leaders on what reforms his country must make to get the 7.2 billion euros ($8.1 billion) left in its bailout plan.

A deal would help Greece meet most of its repayments this summer — nearly 1.6 billion euros to the IMF in June and another 6.6 billion euros to the European Central Bank in July and August.

With a deal, Greece could be in time to get help to pay its debt on Friday.

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WHAT HAPPENS IF THERE’S NO DEAL BY FRIDAY?

Greece might still be able to cover the 300 million euros it owes on Friday. It could, for example, have enough cash left over from raiding the reserves of state entities like hospitals, embassies and schools several weeks ago.

Even if Greece is not able to pay the IMF on Friday, it will not automatically be considered to be in default, just in arrears on its debt. According to IMF rules, only after its debt has been unpaid for a month will the country officially be in default.

But not paying this installment will set the clock ticking on its default and is likely to shake the markets. It could also lead worried Greeks to withdraw more of their money from the banks, something which has been happening at alarming rates in recent months. Greek authorities will be wary of destabilizing the financial system.

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DOES GREECE HAVE ANOTHER OPTION?

Yes. Greece can ask to “bundle” its payments due to the IMF in June into a lump sum to be repaid on June 30. That would give the country just over three more weeks to reach an agreement with its creditors. Although allowed under IMF regulations, the bundling option is rarely used — the last country to do so was Zambia, in the 1980s.

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LET’S ASSUME A DEAL IS REACHED THIS MONTH. WHAT THEN?

Depending on the nature of an agreement, it might need approval by some of the eurozone countries’ individual parliaments.

On the Greek side, Tsipras will have to bring the deal and whatever reform measures it contains back to Athens and persuade hardliners within his radical left Syriza party and in the governing coalition’s junior partner, the nationalist Independent Greeks, to back the plan.

He has already faced public opposition from hardliners who argue that no deal and even a euro exit would be better than rolling back on election promises to repeal bailout austerity measures. It was on those promises that Tsipras was elected in January.

Some in Greece — including members of the governing party — have suggested early elections or a referendum might have to be called if the deal contains concessions to the country’s creditors that some Syriza lawmakers refuse to back in a parliamentary vote. Others have suggested the deal won’t need to be brought to Greece’s parliament at all.

Still, even if it is and Syriza sees defectors, it is likely to pass as opposition party members have said they will back an agreement that pulls the country back from the abyss of default.

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SO ONCE A DEAL IS REACHED, GREECE’S PROBLEMS ARE SOLVED?

Unfortunately, no.

The 7.2 billion euros of remaining bailout funds it is trying to get will only cover it for a while, and Greece faces a mountain of debt repayments this year.

Beyond that, the country’s public debt is so high — about 177 percent of gross domestic product — that it is unlikely Greece will ever be able to pay it all back. In its early days, Tsipras’ government had called for some form of debt forgiveness, and this issue could well return to the agenda once his acute liquidity problems are solved.

Greece’s government insists the country doesn’t want a third bailout, but says it does want to negotiate a new “growth pact” with Europe. Either way, few believe Greece can survive without some form of further help. Athens had wanted this new “pact” to be part of whatever agreement it reaches now, but whether that can happen remains to be seen.

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What next for Greece? A look at its options in coming days