The next few days will be crucial for the future of both
Greece and the euro zone. After the acrimonious collapse of talks Monday
night, what options are left ahead of the expiry of Greece's current
bailout loan on February 28?
Monday was, of course, never a "hard" deadline, and there is still some, very limited, time to find a deal which can save face for both the new Greek government and the rest of the euro zone.
Monday was, of course, never a "hard" deadline, and there is still some, very limited, time to find a deal which can save face for both the new Greek government and the rest of the euro zone.
Yanis Varoufakis, the Greek finance minister, said on
Tuesday: "We know in Europe how to deliberate a very good and honourable
solution out of initial disagreement." There are plenty in the euro
zone hoping he is right, as concerns grow that the current impasse may
not be resolved.
When’s the next ‘deadline’?
This is important because, when you take away ELA as a
backstop, there's effectively no incentive to keep your money in a Greek
bank unless you're extremely patriotic. To avoid mass withdrawals, the
Greek government may have to impose capital controls. "Then, the
domestic politics gets ugly everywhere," Guntram Wolff, director of
Bruegel, the European think tank, told CNBC.
Varoufakis hasn't really said clearly what he wants, other than more money, less conditions. At some point, the ECB will have to close the tab."
Varoufakis hasn't really said clearly what he wants, other than more money, less conditions. At some point, the ECB will have to close the tab."
Third bailout?
By Friday, if Greece hasn't asked to legally extend the
current program (which would need to be approved by six national
parliaments in the euro zone), the only option left is for the country
to a request for a third bailout, according to Jeroen Dijsselbloem, who
chairs the Eurogroup of the region's finances ministers. This would mean
being in hock to international creditors for even longer, and
Varoufakis has said it's not what the Greek people want.
"This is one dramatic battle between love and hate in Greece – love of the euro zone and hatred of austerity," Gabriel Sterne, head of global macro research at Oxford Economics, told CNBC.
"This is one dramatic battle between love and hate in Greece – love of the euro zone and hatred of austerity," Gabriel Sterne, head of global macro research at Oxford Economics, told CNBC.
What’s the deal with February 28th?
This date is regularly talked of as the time when
Greece's bailout expires. However, it's not quite the point of "no
return" – this would come when the ECB closes the ELA tap, or when the
Greek government runs out of finance, both of which are likely to follow
hard on the heels of the existing bailout concluding with no deal.
What will markets do if a deal is agreed?
The euro will regain strength, Greek banks stocks should soar – and the rest of Europe could also benefit.
"We suspect that Greek volatility is holding back
global managers who would otherwise buy Europe," according to Morgan
Stanley's research team.
…and if it isn’t?
Just because euro zone leaders seem confident that
Greece could potentially exit the euro zone without substantial
contagion to other countries, it doesn't mean the market shares their
confidence. There are a growing number of voices arguing it mightn't be
too bad for Greece in the long term, however.
- By CNBC's Catherine Boyle
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