Eleventh-hour talks between Greek and European Union officials have soured with no agreement being reached. The failure of talks on Sunday edges Greece a little closer to a divorce from the EU. There is still some hope, but it is dwindling fast.

At present there are five possible scenarios:

  1. Greece agrees to a deal that satisfies its creditors. Should this somehow happen Greece would gain access to 7.2 billion euros currently put aside for its rescue program. This would be enough to meet its looming debts to the IMF and ECB and go some way to meeting its obligatory payments for state salaries and pensions.
    But that doesn’t mean all is well. Greece has amassed debts amounting to 180 per cent of its annual output; this is double the production of the national economy. And as its debts far exceed its production, without systemic changes the lifeline offered by the EU will only put off the inevitable.
  2. An extension to the current bailout. This gives Greece more time to meet its financial obligations without the EU granting them access to the next package. The extension would most likely be for another nine months (from June 30). This would allow Greece access to the 7.2 billion set aside for them, but in instalments.
    The Greek government would also be able to seek access to the 10.9 billion amassed to underwrite the Greek banks, though Eurozone ministers have already voted against this once before.
    Finally, the Greek debt owed to the European Central Bank would be transferred to the Eurozone’s new bailout fund, controlled by member states.
  1. Greece seeks partial debt forgiveness in return for reforms. In 2012 such an offer was made by Eurozone ministers and no one has forgotten it. However Greeks chafed under the watchful eye of its European partners, even though most economists and finance ministers believe this is the best way out of their current malaise.
  2. The idea that Greece will default on its debt re-payments to the IMF is a real possibility. Should this happen it will likely trigger panic in the markets, leading to a run on the already ailing banks.
    To stem this run the government would have to introduce harsh capital controls (and possible seizures), closure of the banks, the creation of government IOUs, and introduce punitive controls over all assets.
  3. A Greek exit from the Eurozone. This would not only damage Greece, but also the Eurozone itself. A Greek exit would be seen as at least a partial failure of the Eurozone. Investors would be nervous that other economies ‘on the brink’ might follow Greece’s example. Investors would pull their funds from these economies, thereby worsening their already fragile fiscal state and increasing the burden on their wealthier partners.

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