Why Greece may be a failed state on July 20? – Trade

On June 30, Greece went into default with the International Monetary Fund (IMF) unable to pay 1,600 million euros this financial entity. That same day the last financial aid program expired, after the Greek Government does not accept certain conditions of its creditors.

Here are some keys that explain the background and the consequences of the crisis can generate Greece

1) What will happen on July 20

This July 20 Greece must pay 3,500 million euros to the European Central Bank (ECB) if you wish to receive money to meet its internal obligations (wages of civil servants, pensions , etc.). If not paid, the bankruptcy situation of the country will not return, similar to that of a failed state.

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2) What will be the consequences of default on the ECB?

With no cash, the Greek government will be forced to impose capital controls to prevent leakage of money, which could even lead to the imposition of playpen (similar to the one from June 30 until Thursday, which is only allowed the withdrawal of 60 euros a day from ATMs). This does not guarantee that banks will not run out of money.

AFP

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3) The ordeal does not end there

In August, Greece must pay 3,200 million euros to the ECB 1,000 million to other creditors and 176 million euros from the IMF.

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4 ) How did this situation

Between 2000 and 2009, Greece ignored what dictated the Stability Pact of the European Union: the public deficit You can not exceed 3% of GDP and debt should be below 60% of GDP. Thus, the Hellenes governments spent well beyond their means and came to accumulate a deficit that in 2009 was already 13.6%, and a debt exceeded 113% of GDP.

To hide these data, Greece admitted to the statistical office of the European Union, Eurostat, the use of financial instruments known as “swaps” (contract between two parties to exchange cash flows in the future).

This situation is the result of years of corruption and squandering of Hellenes governments. An example is the organization of the Olympic Games in 2004, when the state spent a whopping 9,000 million euros, double the estimate in the initial budget.

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5) How much is the debt?

The base of the Greek crisis is a debt of about 320,000 million euros (175,000 euros per capita), the country is unable to pay without outside help.

Alexis Tsipras (Reuters)

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6) Rescuing Greece

In order to reverse the situation, since 2010 Greece has received two aid programs for some 240,000 million euros (the main creditors are the Eurozone and the IMF) for which it is intended mainly to creditors, most of them banks.

In recent months, the government of leftist Alexis Tsipras has unsuccessfully tried to get a haircut debt and a third aid package, which European leaders, with Angela Merkel at the head, have been ruled out.

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7) In exchange for what Greece receive loans?

The EU and the IMF put as a condition to facilitate austerity measures and drastic cuts in public spending, higher taxes and reforms to the pension system and the money market labor. However, Tsipras government is reluctant to further deepen austerity.

8) What is the position of Alexis Tsipras

Before drop the default with the IMF, and in a desperate attempt to avoid being cut off funding, the Greek Government requested more time to implement the reform of the pension system and maintain exceptions requested to collect the VAT on their islands, They are one of the main tourist destinations. However, l I Eurozone leaders rejected such proposals.