(WND) June 28 2015 NEW YORK – Greece is on the verge of default having failed to reach a refinancing agreement with the EU in a series of EuroSummit negotiations last week that broke off Saturday without conclusion.
On Sunday, Prime Minister Alexis Tsipras announced banks and the stock exchange in Greece will be closed on Monday in a “bank holiday” that the governing council of ministers has recommended be extended through next week to calm down a panicked run of citizens who withdrew €1.3 billion in cash from ATMs over the weekend.
The European Central Bank decided over the weekend not to increase the €89 billion ($100 billion) in Emergency Liquidity Assistance the European Central Bank has reserved to provide Eurozone central banks, including the central bank in Greece, with the liquidity needed to keep ATMs and banks open during a financial crisis like that currently experienced in Greece.
Tsipras is pushing a national referendum on Friday, July 5, calling for a “yes” or “no” vote regarding whether to accept the new austerity measures demanded by the international creditors including the International Monetary Fund, but the vote could turn out to be moot with the European Union threatening to withdraw the current refinancing deal and cut off emergency funds on Tuesday, June 30, if Greece defaults, as appears likely, on a €1.3 billion payment to the IMF scheduled due that day.
“I’m making an appeal for calm,” Tsipras said in an appeal to the nation on Sunday. “Your bank deposits are safe.”
Meanwhile, financial markets around the world are preparing for the likelihood of what in Europe is being called a “Grexit,” the exit of Greece from the euro, given that without a refinancing agreement from the international creditors including the European Union Central Bank and the IMF, Greece has no prospect of meeting the interest and principal payments scheduled on the nation’s huge €300 billion euro debt.
Solutions to Greek debt crisis have stalemated as EU bankers have grown tired of lending Greece the money needed to make scheduled interest payments on the outstanding debt, realizing that promises by Greek politicians to raise additional government funds by raising taxes and cutting pensions are unlikely to work in a nation where additional austerity measures are likely only to depress further an already depressed Greek economy.
The “elephant in the room” turns out to be Deutsche Bank with a $75 trillion exposure in derivatives, an amount 20 times the gross domestic product, GDP, of Germany, that could go south should the bank’s complex bets on the Greek debt crisis collapse, causing a failure reminiscent of the derivatives collapse that caused Lehman Brothers to collapse in bankruptcy in 2008, as the bank’s highly leveraged derivative position in the collateralized mortgage market.
On Sunday, Citigroup economist Ebrahim Rahbari, the economist who coined the term “Grexit” in February 2012, advised clients in a research note that he expects the Greek referendum July 5 will result in a comfortable majority for the “yes” camp, eliminating the chance Greece will withdraw from the euro this ear and reducing the likelihood of a Grexit in subsequent years.
Bloomberg reported Sunday that a majority of Greeks support retaining the euro, although in a country with a 25 percent unemployment rate and an economy that has contracted by a quarter since 2010, there is not a majority to support the further tax increases and government spending cuts EU creditors may demand
A decision by Greece to exit the euro would not necessarily mean a decision by Greece to exit the European Union.
Still, the financial disruption a Greek exit from the euro would cause throughout the EU is likely to be sufficient to cause European stock markets to decline precipitously after opening on Monday morning, with the prospect of an EU stock-market collapse causing jitters worldwide.
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