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Crisis In Athens Enters New Chapter As Greece Becomes First Developed Nation To Default On Debt

Greece has become the first developed nation to default of its international debt obligations as the International Monetary Fund (IMF) confirmed on Tuesday night that it did not receive the €1.55 billion ($1.73 billion) payment from Athens that was due by the end of June 30, Brussels time.

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The Crisis in Greece has entered a new chapter as the country has now become the first developed nation to default of its international debt obligations.

The International Monetary Fund (IMF) confirmed on Tuesday night that it did not receive the €1.55 billion ($1.73 billion) payment from Athens that was due by the end of June 30, Brussels time.

IMF spokesman Gerry Rice said in a statement that the payment from Greece was not received on Tuesday, however he noted that Athens did ask for an extension on its debt obligation and that the IMF’s board will consider this “in due course.”

“I confirm that the SDR 1.2 billion repayment (about EUR 1.5 billion) due by Greece to the IMF today has not been received. We have informed our Executive Board that Greece is now in arrears and can only receive IMF financing once the arrears are cleared,” Rice said.

“I can also confirm that the IMF received a request today from the Greek authorities for an extension of Greece’s repayment obligation that fell due today, which will go to the IMF’s Executive Board in due course,” Rice added.

Prior to missing the payment, the Greek government asked on Tuesday for a new bailout program from the European Stability Mechanism (ESM), that would cover all the country’s financial needs for the next two years.

The news on the missed payment hardly came as a surprise to anyone after Greek Finance Minister Yanis Varoufakis told journalists on Tuesday that Athens would not make the IMF debt payment on time.

Missing a payment to the IMF is referred to as arrears, or money that is owed that should have been paid earlier, where the IMF will not provide financing until the arrears has been cleared.

The missed payment by Greece could now trigger a cross-default on Greece’s multibillion-dollar commitments to the European Financial Stability Fund (EFSF).

On Monday, Fitch Ratings downgraded Greek banks to a restricted default (RD), then on Tuesday downgraded Greece’s sovereign rating by one notch to ‘CC’ from ‘CCC.

On Monday, Standard & Poor’s (S&P) downgraded Greece’s rating from CCC to CCC-, and put the odds of an exit from the Eurozone at 50 percent. On Tuesday, S&P downgraded its ratings on four Greek banks to selective default.

The former CEO of PIMCO, Mohamed El-Erian, recently said that there is a 85 percent probability that Greece will be forced to leave the Eurozone and that the country is heading for a “massive economic contraction”.

Legendary investor Jim Rogers recently said in an interview: “if you ask me what they should do – is just go ahead and go bankrupt, get it over with and start it over.”

The missed payment by Greece comes at a particularly troublesome time as the country imposed capital controls, shut its banks, and closed its stock markets until further notice on Sunday in order to avert a collapse of its financial system.  This was following Greek Prime Minister Alexis Tsipras’s shock announcement late on Friday night of a July 5 referendum on austerity measures demanded by the country’s creditors.

Index provider MSCI warned on Monday that the closure of the Athens stock market and the imposition of capital controls could lead to Greece’s relegation from the benchmark emerging markets index and its reclassification as a “standalone” market.

Should Greece be reclassified to “standalone” it would join the ranks of such countries as Botswana and Zimbabwe as countries that the MSCI say do not meet minimum liquidity requirements, their markets are partially or fully closed to foreign investors, and stock lending or short selling are either not developed or prohibited.

MSCI had previously downgraded Greece to emerging market status in November 2013.

Michael Snyder recently walked us through the steps if a Greek-style crisis should hit the U.S., in addition to highlighting the 16 facts that are tremendously causing global financial devastation.

Now, the question is what is next for the Greek financial system, its people, and its membership in the eurozone?

All the recent media noise, with a negative bias towards a “Grexit”, has investors panicking, whereas more sophisticated investors, such as hedge funds, see this as a potential buying opportunity.

So where are we? Is Greece leaving the Eurozone a realistic scenario?  On Tuesday we weighed this exact question: To Grexit Or Not To Grexit.

Here are the four contrarian reasons against a Grexit scenario:

1. Merkel says if the euro fails Europe fails

Nobody has a notion what would really happen if Greece left the Eurozone.

Yes, Europe’s banking system is in better shape to withstand another financial disaster or the possibility of a country leaving the monetary union, but in all honesty, Merkel, Draghi, Juncker, Schauble and the rest – none of them have a clue what would really happen to the euro despite their postulations.

2. Polls say 60% of Greeks want an agreement with creditors

The vast majority of Greeks do not want to leave the Eurozone and 60% of them want their country to reach an agreement with the institutions according to official polls.

3. Neither Syriza, Greeks nor the creditors want a Grexit

It’s important to note that the Syriza very much opposed to a Grexit straight from the beginning as nobody wants it. The only people who can decide they want to leave the euro are the Greeks themselves, and they have demonstrated that they want nothing of the sort.

4. Scare tactics have worked throughout history, which is why Claude Juncker is using them

Juncker has implored the Greek people “not to commit suicide for fear of death.” Though he will have annoyed a good many Greeks with his intervention, scare tactics have worked for countless political campaigns and will probably work again.

*  *  *

So what’s going to happen next?

There are a number of possibilities out there, but obviously we are not sure how this will exactly play out — at this point — but we will find out soon, certainly following the outcome of the Greek referendum vote, slated for this Sunday. Whatever the result is, we want to wish all the best to the people of Greece, as we believe they should be able to decide on their own future.

On the economic side of the equation we don’t believe that austerity works long term. We believe it simply kills growth and plays out only and only in the bankers’ favor. On a social side, it significantly impacts everyday life and crushes dreams.

The chart attached below says it all.

Greece vs. Europe


2 thoughts on “Crisis In Athens Enters New Chapter As Greece Becomes First Developed Nation To Default On Debt


  1. Pingback: Greek Economic Growth Could Immediately Plunge 25% Following Grexit, S&P Warns | EMerging Equity - July 3, 2015

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