Is a Greek default and 'Grexit' now inevitable?

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

Can Greece avoid a default?

Most likely, no. It is now almost certain that Greece will fail to make a €1.5 billion (S$2.4 billion) debt repayment to the International Monetary Fund due on Tuesday, June 30.

This is also the day when the terms of its eurozone bailout run out. Without any agreement on new bailout terms with its creditors, Greece will not get the final €7.2 billion instalment it so desperately needs. Greece appealed for the bailout terms to be extended to cover a referendum it called on the bailout proposals on July 5 but the European Union and IMF have refused.

Even if Greece somehow makes the June 30 repayment, it has a slew of instalments owing to the ECB too, with a €3.5 billion tranche due on July 20.

The European Central Bank has also said no to extending more emergency cash to Greek lenders to keep them afloat despite a virtual run on its banks before capital controls were announced at midnight on Sunday. But even if the ECB kept the banks afloat before next Sunday's referendum, a no-vote would likely prompt it to withdraw support anyway.

So unless Athens or its creditors capitulates, or Greeks vote yes to the bailout proposals, Greece is staring at imminent default.

But does default mean having to leave the eurozone?

There is no precedent for a country to leave the single-currency union and no one seems to know how this would happen.

Greek Finance Minister Yanis Varoufakis says there is no provision for any country to leave the euro, and insists July 5 referendum is not about Greeks voting yes or no to 'Grexit'. Opinion polls show that while Greeks overwhelmingly support the government's anti-austerity stand, the majority are for staying in the eurozone.

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

Some economists say potentially the best option would be for Greece to pursue a 'managed default', the BBC reported. Strict capital controls could be imposed to stop money from flooding out of Greece and a parallel currency to the euro could operate with civil servants paid with IOUs. But few economists see that as workable and the most likely outcome would be an eventual return to the drachma - i.e. a Grexit.