For a country like the Greek, without financial structure to grow, no payments would face the worst scenario
Greece has spent months negotiating with creditors (IMF and EU) and postponing debt payments. Nobody wants to take responsibility for their exit from the euro, and the Greek government itself, aware that its citizens do not want. But on the table it is the worst option: a suspension of payments. What does a country becomes bankrupt or break? Can it be avoided? Which countries have been in this situation? What would it mean for the country and the rest of its European partners?
When a country does it go into bankruptcy?
The default or bankruptcy occurs when a non- You can deal with payments on their debts, whether public or private. States have creditors, that is, natural or legal persons who have invested in it and you have to repay the money with interest. If I time, the country does not have enough money to meet payment commitments, then suspended payments and is considered entering “default”.
Is it possible to prevent a country goes bankrupt
Before we get to that situation, the State concerned is to negotiate with creditors. Sometimes it gets refinance the debt or remove the same remember. In the nearest case of Argentina, the Economy Minister Axel Kicillof, warned that Argentina could not accede to the demand of the “vulture funds” and offered “the same conditions that placed the rest of the bondholders who agreed swaps 2005 and 2010 “, which the representatives of the” holdouts “rejected.
What happens immediately after suspending payments?
” Nothing declared in default, the country begins to negotiate debt with creditors. The process can be long. But if foreign currency debt around is complicated. Uncertainty, capital controls, restrictions on domestic spending. political and social tension. Obviously, currency depreciation and restriction monetary conditions to face the risk of a deterioration in the inflation outlook. In this scenario the initial economic decline is important and affects growth expectations, said Jose Luis Martinez Campuzano, chief strategist at Citi.
ANADIE “Obviously, this would be the general case. It depends on how discussions evolve, the rapid response of the authorities, of the possibilities the country has recovered quickly. What is clear is that it is excluded from international financing. If ordered, you can count on the support of the IMF that gives financial coverage (with counterparts settings) in the short term. But if it is messy and without IMF support, have a long way full of difficulties to find a solution, “said Martinez Campuzano.
What countries have experienced a bankruptcy?
In the last 200 years to 250 countries have declared bankruptcy. Most until age 60 for reasons related to wars or epidemics. Since the sixties, especially in developing economies. The most recent was in 2001 in Argentina and 95,000 million and in 2010 Greece itself by 125,000 euros. The vast majority of defaults is resolved with debt restructuring. And backed by supranational institutions, especially the IMF said Martinez Campuzano.
What are the steps to follow to get out of that situation?
“The country must take measures that must negotiate with its creditors with structural reforms, pensions, taxes, reforms in the public sector and labor market to ensure increased competitiveness. No doubt it is preferable to bankruptcy, “diceMario Weitz, World Bank consultant and professor of ESIC.
What if Greece suspends payments?
The first result would be that the country could not be financed. The markets are virtually closed to them, and stop receiving aid from its European partners. Greece would run out of funding, and could not even pay what you owe or services to its citizens. “A bankruptcy may be unilateral or concerted. In the case of Greece, it is most likely to be unilateral, if it occurs. The economy is in collapse, “muses Weitz” The banking corralito, the outflow of capital controls, the output of savings abroad, the sharp fall in GDP and rising unemployment are some of the inevitable effects. “
Would Greece to leave the Euro?
“does not have to,” adds Martinez Campuzano. “In fact, it may be in the euro without paying the debt. But it is not easy. Isolated ECB funding without government support, would be more costly in the short term be inside than outside it. I am thinking especially of the “competitive benefits? Depreciation of the currency. Undoubtedly, social and political level to increase pressure to exit the euro”.
What are the consequences for Europe and the Greeks?
For Weitz, if Greece goes into bankruptcy, the effects will be bad for Europe, but horrible for Greece. “We must not forget,” he points? that an important part of the deterioration of the Greek economy is that the country has an economic structure to grow and pay, nor has industry or exports or has major companies. That, coupled with the informality and poor discipline in the payment of taxes, and widespread rogue, well known in that country makes it very unproductive. The economic downturn is assured. The purchasing power of citizens is evaporated and the low quality of much life. “He adds, however, to be essentially debt with governments and the IMF the effects on the world economy will be much more moderate than if the debt was with banks or investment funds. “It could have a contagion effect on the Mediterranean countries, with increases in the risk premium, falls on stock markets, the markets are already discounting these days. And the sad thing is that the new Greek government has wasted valuable time, sinking the economy further. “
” In the short term the country suspended payments lacks the resources to import and scarcity appears, which produces inflation of all imported goods, which in many cases push domestic prices because they enter into their production processes? says IESE Prof. José Ramón Pin Arboledas “If the country can, it devalues the currency and inflation accelerates. inflation is more detrimental to the poorest, increasing social inequality. Although in monetary terms do not lower wages, they do in real terms, because they are impaired in their purchasing power due to inflation. “
A bankrupt country in the euro area
If the country “Greece, for example? continues in the euro area, and there is no” Grexit “(leaving the euro), can not devalue the currency . Then you have to devalue their wages in monetary terms, including the public sector and pensions. But being in the eurozone if it shows signs of wanting to respond responsibly to the situation can maintain liquidity in the system with the help of the ECB and reduce the effect on wages. It actually came out or not the euro will end up impoverishing the poorest, contrary to what they say they want supporters of leaving the euro and stop paying the debt.
What is a default selective?
it occurs when a country fails to pay a type of debtors. “He did Argentina in recent times,” recalls Pin Arboledas “occurred with some creditors who did not accept conditions of debt restructuring. It is as if Greece fails to pay the IMF and not to other creditors. The Argentine government denied was a suspension of payments. The Greeks probably say the same thing if it happens, but what matters is what other creditors created. In the case of Greece would be more serious than that of Argentina. Its risk premium will be excessive if it gets put “.
a country goes bankrupt is marked?
For a time the country is not reliable and in case you need to issue debt will have to do to rates excessive interest. Now, you can go gradually regaining reputation if successive governments begin to implement the commitments. To Pin Arboledas, “the worst thing is that it takes time to regain that reputation and the confidence of international investors who only invest speculatively lost”
Source:. ABC.es
With information Confirmed
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