Q What will happen if Greece and its creditors are unable to reach an agreement?
A Since 2010, Greece has been on a bailout programme which has allowed its government to borrow €125.3bn (£93bn) at cheap interest rates, so long as it went through with reforms and austerity measures. More money will be available to Greece if it can show it is sticking to its programme, but Athens is strongly opposed to it. In fact, Syriza’s main election promise was to oppose it. The government is scheduled to repay €1.2bn due on 6 March followed by a €1.5bn IMF loan repayment later in March. Further bond redemptions (debt repayments) of €3.5bn in July and €3.2bn in August. Reports suggest there is less than €2bn in Greece’s coffers. Without an agreement, Greece will likely default on its debt.
Q What is all the fuss about Greek banks?
A People have been pulling money out of Greek banks since the election was called in December. Greek banks are low on cash so if any depositor attempts to withdraw a deposit, the bank must borrow from Greece’s central bank. But this emergency lending is dependent on Greek banks being solvent – having assets worth more than their liabilities. A good portion of Greek banks’ assets is Greek government bonds. If Greece defaults on its debt, its banks will see a significant proportion of their assets lose value and may be deemed insolvent. If insolvent, they will not be able to borrow further emergency lending. Banks would have to close their doors.
Q Could Greece leave the euro?
A Leaving the euro would be tempting for Greece if it was faced with a banking crisis. With its own central bank issuing its own currency, it could easily transfer funds to banks and also boost spending in the wider economy. A weaker currency would also make holidays to Greece cheaper, boosting its tourism industry. Europe may not be too fazed by a Greek exit either. “European banks’ exposure to Greece has collapsed to virtually nothing. It was at $250bn (£163bn) in 2009. It dropped to $34bn currently. Today, over three quarters of Greek debt is owned by the Troika [IMF, EC and ECB],” said analysts at investors Lombard Odier. However, they note that if Greece left, the EU may then be faced with an increase in anti-austerity parties.