As Athens tires to negotiate a new bailout deal with its Troika of creditors amid a cash crunch, a drastic ‘Plan B’ by Greece may involve the unprecedented step of missing a payment to the IMF next week, getting rid of the euro, returning back to the drachma, nationalizing its banks and cutting off its banking system from the European Central Bank, The Telegraph reports citing sources familiar with the matter.
“We are a left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer,” a senior official told The Telegraph.
“We will shut down the banks and nationalize them, and then issue IOUs if we have to, and we all know what this means. What we will not do is become a protectorate of the EU,” another source told The Telegraph.
Sources close to the ruling Syriza party said the government is determined to keep public services running and pay pensions as funds run critically low. It may be forced to take the unprecedented step of missing a payment to the International Monetary Fund next week.
Greece no longer has enough money to pay the IMF €458m on April 9 and also to cover payments for salaries and social security on April 14, unless the eurozone agrees to disburse the next tranche of its interim bail-out deal in time.
While the party does not wish to trigger a formal IMF default, it increasingly views a slide into pre-default arrears as a necessary escalation in its showdown with Brussels and Frankfurt.
The view in Athens is that the EU creditor powers have yet to grasp that the political landscape has changed dramatically since the election of Syriza in January and that they will have to make real concessions if they wish to prevent a disastrous rupture of monetary union, an outcome they have ruled out repeatedly as unthinkable.
Going into arrears at the IMF – even for a few days – is an extremely risky strategy. No developed country has ever defaulted to the Bretton Woods institutions. While there would be a grace period of six weeks before the IMF board declared Greece to be in technical default, the process could spin out of control at various stages.
The drachma was Greece’s currency from 1832 until 2002, when it switched to the euro. At the time, 1 euro equaled about 340 drachma.
During the 2008 financial crisis, Iceland’s government decided to allow its banks to fail and default on $85 billion. Iceland then nationalized its main three banks. The unprecedented move caused its stock market to crash by 90 percent, unemployment jumped to 10 percent, and inflation rose to 18 percent.
Greece now faces an April 9 deadline to repay €463.1 million in IMF loans with another €768 million in loans due in May. After the payments are received and the EU approves the reform proposals by Finance Minister Yanis Varoufakis, the Troika of lenders is expected to release the next €7.2 billion tranche to Athens.
According to a senior official, Syriza and Prime Minister Alexis Tsipras have the power to decide not to make the upcoming payments.
“We may have to go into a silent arrears process with the IMF. This will cause a furor in the markets and means that the clock will start to tick much faster,” the source told The Telegraph.
The Greek Finance Ministry denied rumors on Friday that they weren’t going to pay the €460 million in loans due on April 9.
With its massive €316 billion debt, a collapse of the Greek economy would be catastrophic for Europe, the global economy, and global markets.
Should lending be cut off, Greek banks would become insolvent overnight and Athens would need to start printing its own currency to replace the euro.
Deposits in Greek banks fell by €7.8 billon ($8.60 billion) in February to a 10-year low of €140.5 billion, as customers pulled savings amid growing concerns that the country might exit the Eurozone.
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