Tuesday, June 30, 2015

Greece: Tuesday, June 30, midnight, default to the IMF … and then nothing – The Obs

The moment everyone dreads approaches: Greece will default on its debt on Tuesday June 30 evening. Since Monday, stock markets around the world plunged, Greeks are queuing at ATMs to withdraw painfully allowed 60 euros, and European leaders are pulling their hair.

Until Tuesday night, there is still time to reach an agreement, claim the Heads of State and Government of the euro area one after the other. But Tsipras government seems determined to await the results of Sunday’s referendum in order to obtain from the creditor financial aid without implementing a new economic austerity program.

Nobody wants to be held responsible for the Grexit, the exit of Greece from the eurozone. The President of the European Commission, Jean-Claude Juncker, has sent a final proposal for an agreement in Athens. In vain, it seems. Prices Nobels, the central bankers and observers fear that June 30 remains in history as the beginning of the end of the single currency and the European dream.

And yet, at midnight, in Greece, you will see, it will not do anything!

First of all because the deadline for the payment of 1.6 billion euros of Greece at International Monetary Fund (IMF) is 30 June 2015 6 pm Washington time, that is to say, 1 am in Athens! At that moment, an official of the International Monetary Fund, probably exempt from tax, officially declares that Greece has not paid its due. And even at 1 hour, Athens time, the “backlog of payment”, as they say in the jargon of the institution, will not cause any cataclysm.

In the IMF? Nothing

The procedure requires that a country in that position is private way of any further assistance from the Fund.

But this should be neither hot nor cold in Athens, “says Eric Dor, an economist at IESEG,” because since May, all payments to Greece from the IMF are somehow frozen pending the outcome of negotiations. “

At most, failure will it triggers a count-down of one month, after which IMF chief Christine Lagarde must notify the Board of Governors, ie the 188 member countries of the Fund. A month later, the former Finance Minister Nicolas Sarkozy is to file a formal complaint. And yet a month later, the country may find itself deprived of Special Drawing (SDR). Big deal!

The rupture between Greece and the Fund is not for right . The following “declaration of non-cooperation” can happen in 15 months the suspension of voting rights in 18. The exclusion, in two years, and again, this is very unlikely.?:. more than 20 countries have already had arrears, only Czechoslovakia was excluded during the Cold War, and even Somalia, Zimbabwe and Sudan, which have not paid their slate for years, have not undergone such treatment. And by then, the fate of Greece, whatever it is, will be settled.

In European funds? Nothing

One of the legal consequences of failure to the IMF deals with the European Financial Stability Facility (EFSF), the Europeans created in crisis to help countries in trouble.

The EFSF has lent some 140 billion euros in Athens, and by virtue of a clause in the contract which links it to the IMF, if it is not repaid, the EFSF is entitled to demand accelerated repayment of all of what he has lent him, “said Eric Dor.

This which makes some people say that every French may lose a few hundred euros in the case. But we are very far away. The Europeans will not require repayment that would completely bankrupt Greece and make this refund eventually impossible.

With the rating agencies? Nothing

This time, we can not accuse Standard and Poor’s, Moody’s and Fitch Ratings have poured oil on the fire. The first recalled that it was interested in the solvency of Greece from the point of view of private creditors. However, since 2012, government debt has been restructured. On 320 billion, private (that is to say, banks) hold only for 39 billion euros in bond and 15 billion euros in treasury bills (including 9 billion held by Greek banks ).

Standard and Poor’s has downgraded Greece this week, it rose from CCC to CCC-. However this has nothing to do with the failure to pay the IMF but with the freezing of funds decided by the government, a sign that the country is approaching the exit from the euro, and that within six months, If exit, this time it could be a difficulty repaying private creditors. By then, again, the negotiations are either triumphed or failed miserably.

On the financial markets? Nothing

two hours Wednesday morning, Asian markets will be open. Europe and the finance will wake a few hours later with Greece in default, a prospect that rattled investors for several weeks. No way to let their precious investments depreciate overnight. The latest debt crisis, with its current form of roller coasters, has left traces.

And yet, we expect only a small wave on the stock exchanges the planet. Would the traders took the lead? The Cac 40 lost nearly 3% Monday, and all the other awards have followed the same trend after the announcement by the Greek Prime Minister Alexis Tsipras that the agreement with the creditors of Greece would be put to a referendum. But it is only a correction increases that have occurred in recent weeks in the hope of good news.

In reality, the situation is rather calm . First, because the European Central Bank announced Sunday that it was maintaining the emergency loan program that allows Greek banks to survive. Secondly, because the default to the IMF became a non-event. “As long as negotiations are underway,” said Christian Parisot, economist at Aurel BGC, “rather it is considered a late payment as a defect. Investors remain motionless, as if there is an agreement and that they sold their shares, they will miss a rise in prices. They have their eyes on the referendum and the negotiations that will follow. “

For the ECB, so far, so good …

The only place where the default of Greece has real consequences, in Frankfurt, in the corridors lined with orange carpet seat of the ECB. For it is not certain that the institution can maintain a drip Greek banking system long. Its statutes allow it to be paid to Greek banks for emergency loans (ELA) until they are creditworthy, and accept as collateral for the solvency of Greek debt ….

Once Greece defaults on part of its debt, can the ECB still consider that these titles are still valid, that Greek banks are solvent and ELA is that legal? To this question, apparently technical, there are as many answers as political views. It seems that the Germans began to advocate for stopping the program to support Greek banks at the weekend. But we need a strong majority to reach such a decision.

The ECB ultimately upheld the program while limiting the amount awarded, forcing the Greek government to introduce a freeze of funds and restrictions on withdrawals. The question is whether it will do so long. She should be able to achieve it by Sunday, not to hijack the Greek citizen called to vote. But then? It will take a deal. Otherwise the consequences will be much more visible than the default to the IMF.

Donald Hebert

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