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Concern in Europe over a possible Greek default

15 April 2015 / 20:04:54  GRReporter
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Concerns about a Greek default are present in most European capitals, reports the Greek online edition iefimerida.gr. The author argues that they are keeping secret the plans that they are preparing for the possible announcement of Grexit, so as not to cause panic in the financial markets.

At the same time, the German newspaper Die Zeit reports that the German government is working on an action plan in the event of a Greek default, without Greece leaving the euro zone. The newspaper refers to sources from the German cabinet, according to which the opinion that Athens will not be able to implement even some of its commitments to the creditors during the coming critical weeks is becoming increasingly popular in Berlin. The publication states that the plan provides for the funding of Greek banks by the European Central Bank, although they will be considered in default as well.

A prerequisite for the implementation of this scenario for a "soft" default will be the manifestation of the spirit of cooperation on the part of the Greek government that will have to work for the implementation of reforms.

According to the magazine Euro Insight that refers to sources from the euro zone, all member states and European institutions are intensely preparing to cope with the consequences of a possible Greek exit. In parallel, and for obvious reasons, they are trying to understate the significance of the planning exercises.

Former deputy director of the research department at the International Monetary Fund Flemming Larsen argues before the magazine that it is very likely for the Fund to have formed a small and discreet group consisting of senior representatives, which has to explore the possibility of a Greek exit from the euro zone and the likelihood of Greece being unable to implement its commitments to the creditors. Parallel to this, the duties of the group include finding ways to restrict the likely consequences of such a development for the global economy. Spokeswoman for the European branch of the International Monetary Fund Angela Gaviria, however, refused to comment on these statements.


According to the magazine, Germany, Portugal, the European Commission and the Eurogroup have already prepared initial action plans in the event of a Greek exit whereas the German media report that the European Central Bank is also prepared for this option. According to Larsen, the purpose of these actions is to limit the contagion in other countries. From this perspective, the European Central Bank will have to ensure interbank liquidity to avoid the domino effect. Larsen says that the programme of quantitative easing (QE) is already acting as a mechanism against the spread of the crisis.

In an attempt to mitigate the seriousness of the situation, a senior EU official in Brussels compares it with the following example, "I assume there is somewhere in Europe a contingency plan in the event of an accident in a nuclear power plant but this does not mean that we are expecting such an accident to happen." In response to an invitation to comment on this statement, European Commission spokeswoman Mina Andreeva said that "the only plan of President Juncker is to keep Greece in the euro zone. We are working day and night with the partners to make this happen and will not be distracted by any rumours in the press."

In addition to concerns that a possible Greek exit from the euro zone would cause panic in the financial markets, there are political fears too. What is happening in Greece now can happen in other countries if populist parties like SYRIZA manage to take power. Their Spanish equivalent Podemos is first on the list.

In addition, chief economist of the International Monetary Fund Olivier Blanchard said on Tuesday that the euro zone might be more prepared to withstand the consequences of a possible Greek exit but "it does not mean that there will be no consequences."

The rumours of a possible Greek default collapsed the shares of Greek banks on the Athens Stock Exchange.

Meanwhile, credit rating agency Standard & Poor's has downgraded Greece from B-/B to CCC+/C with a negative outlook as regards the prospects for the country to continue paying its foreign debt.

In its statement, the agency justifies its decision by the deteriorated state of Greek banks and government finances. The text also states that without "deep" economic reforms and further relief the Greek debt will be unsustainable.

Tags: PoliticsGreeceDefaultGrexitStandard & Poor'sDowngradingEuro zone
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