June 28, 2015

Greece looks certain to default on Tuesday

Cash-strapped Greece looks certain to miss its debt repayment to the IMF on Tuesday as Greece's European partners shut the door on extending a credit lifeline after Greece's surprise move to hold a referendum on bailout terms.

Fear of an imminent default by Greece hit Greek banks, a major buyer of Greek government bills, triggering bank runs over the weekend and forcing Prime Minister Alexis Tsipras to announce a bank holiday and capital controls.

Some investors, however, are pinning their hopes on the possibility that Greek voters will back the creditors' bailout terms in next weekend's referendum, returning Athens to the negotiating table, despite Tsipras urging a no vote.

"Right now the surprise is that the euro is not weaker. The logic may either be that the Greek government will come back to the negotiating table or that it will not survive long, if 'Yes' prevails contrary to their recommendation," said Steven Englander, Global Head of G10 FX Strategy at CitiFX in New York.


People line up to withdraw cash from an automated teller machine (ATM) outside a National Bank branch in Iraklio on the island of Crete, Greece June 28, 2015.
REUTERS/STEFANOS RAPANIS


Greece, which may default on an International Monetary Fund debt repayment due on Tuesday after talks with creditors broke down, owes its official lenders 242.8 billion euros ($271 billion), according to a Reuters calculation based on official data, with Germany by far the largest creditor.

Greece has a population of about 11.2 million. Greek unemployment has been about 25-30% for several years.

Greece has about $25,000 worth of debt for every man, women and child. The debt is $50,000 to 60,000 for every employed adult.

Greek per capita income is about US$22,000 on an exchange rate basis. However, if they were to fall out of the Euro then their currency could end up being half the exchange rate.



Greek Capital Controls

Greece imposed capital controls and ordered banks to close temporarily after the European Central Bank froze a vital financial lifeline following the breakdown of bailout talks between Athens and foreign creditors.

Here are the main measures adopted by the government:

- Banks will close until to July 6. All credit institutions in Greece, including branches of foreign banks, are affected.

- The finance minister may shorten or extend the bank holiday period.

- ATMs will open from Monday afternoon. Daily cash withdrawals will be limited to 60 euros. The limit can be changed by the finance minister.

- Payments via debit or credit cards to accounts within Greece and online banking transactions within Greece will be allowed but payments and transfers to accounts outside Greece are prohibited.

- Cash withdrawals at ATMs with bank cards that have been issued by foreign banks will be allowed. Withdrawal limits may be set by the finance minister.

- All other transactions will not be permitted.

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