Default almost certain but is 'Grexit' inevitable?

German businessman Uwe Dahlhoff presenting his products labelled "Grexit".
German businessman Uwe Dahlhoff presenting his products labelled "Grexit".PHOTO: EPA

ATHENS - Can Greece avoid a default?

Most likely, no. It is now almost certain Greece will fail to make a €1.5 billion (S$2.3 billion) debt repayment to the International Monetary Fund (IMF) today (Wednesday Singapore time).

This is also when the terms of its euro zone bailout run out. Without a deal on new bailout terms with its creditors, Greece will not get the final €7.2 billion instalment it desperately needs.

Greece appealed for the terms to be extended to cover a referendum it has called on the bailout proposals on July 5, but the European Union and IMF have refused.

Even if Greece makes the repayment today, it has a slew of instalments owing to the European Central Bank (ECB) too, with a €3.5 billion payment due on July 20.

The ECB has also said "no" to extending more emergency cash to Greek lenders to keep them afloat despite a virtual run on their banks before capital controls were announced. Even if the ECB does a U-turn and agrees, a "no" vote at the referendum will likely cause it to withdraw its lifeline.

So unless Athens or its creditors capitulate, or Greeks on July 5 vote "yes" to the bailout proposals, the country is staring at imminent default. But does default mean having to leave the euro zone? There is no precedent for a country to leave the single-currency union and no one knows how this would happen.

Greek Finance Minister Yanis Varoufakis insists the July 5 referendum is not about Greeks voting "yes" or "no" to a Grexit. Opinion polls also show that while Greeks support the government's anti- austerity stand, the majority are for staying in the euro.

But without financial support, there seems little reason to remain in the euro and bookmakers and traders have already lowered the odds of a Grexit to 3-1.

ANN WILLIAMS

A version of this article appeared in the print edition of The Straits Times on June 30, 2015, with the headline 'Default almost certain but is 'Grexit' inevitable?'. Print Edition | Subscribe