Greece's announcement Friday that it would postpone the latest 300 million euro repayment it owes the International Monetary Fund until the end of June has prompted a flood of doubts about Greece's future in the Eurozone.
But ominous warnings notwithstanding, a lot more would need to happen before Greece would leave the European monetary union. While key differences remain between Greece and its international creditors regarding the terms of the bailout needed to keep the country afloat, the negotiations are far from over. And experts say that both sides are concerned enough about the unknown consequences of a Greek departure that it remains a highly unlikely scenario.
Below is a primer on the latest drama between Greece and its creditors and some context for people lost in the sea of acronyms, foreign leaders and euro signs.
What exactly happened this week between Greece and its creditors?
Greece's announcement means that instead of making its scheduled payment of 300 million euros June 5, Greece will instead bundle the four installment payments it owes the IMF for the month of June into a single payment of 1.6 billion euros at the end of the month.
Greece's postponement is the latest in a series of chess moves between the country's left-wing government and the so-called troika of creditors comprised of the IMF, the European Central Bank (ECB) and the European Commission, the government body representing the 19 Eurozone countries. On Tuesday, the troika issued a joint proposal to make available to Greece the remaining 7.2 billion euros previously-promised in bailout loans in exchange for a series of fiscal reforms. Since 2010, the IMF, the ECB and Eurozone member nations have provided Greece with loans amounting to 240 billion euros.
But Greece had submitted its own debt restructuring plan to its European creditors Monday, and Tuesday's proposal from the troika did not accommodate many of Greece's demands. As a result, it was received coldly by Greek Prime Minister Alexis Tsipras and may have prompted Greece’s announcement Friday. Tsipras, head of the left-wing Syriza party, was elected in January on a platform of renegotiating the terms of Greece's international bailout in order to provide relief to the struggling Greek economy and restore funding for social programs.
Is Greece finally about to leave the Eurozone?
In response to the news that Greece would be postponing its IMF repayments, press reports were filled with doom-and-gloom pronouncements that this was finally the beginning of a “Grexit,” or Greek exit from the Eurozone. An exit would happen if Greece decided the terms of its international bailout were not worth the costs and that defaulting on its debt and readopting the drachma, its pre-Euro currency until 2001, was its best option. Economists are divided about how well an exit would work for Greece, but most agree it would be a devastating blow to the viability of the Eurozone project.
If Greece leaves the Eurozone, it would have to create a new currency overnight, which would probably cause serious market tremors and force it to stave off a run on its financial institutions. But it would allow Greece to devalue its currency, boosting exports and enabling it to restore funding on social programs.
But two experts on the Eurozone crisis told The Huffington Post that a Grexit remains very unlikely, because the other Eurozone countries are too worried about the fallout from a Greek departure to insist on terms that would force Greece to abandon negotiations.
Nicolas Véron, a visiting fellow at the Peterson Institute for International Economics and a former French government advisor, described the week’s developments as political theatre intended to reassure domestic constituencies in both Greece and top Eurozone creditor countries like Germany.
“If you simplify it by saying the two main negotiators are Alexis Tsipras and [German chancellor] Angela Merkel, they need to find a deal, but each of them also needs to sell the deal to their constituents,” Véron said. “Many of us who look at the substance believe the two parties are not too far apart, but far apart in politics and how they can sell it. There are hardliners on both sides. Merkel and Tsipras are not hardliners in their respective camps.”
Mark Weisbrot, co-director of the Center for Economic and Policy Research, characterized Greece’s Friday announcement as a genuine negotiating tactic aimed at securing more favorable terms than those the creditors had offered thus far.
“I think it shows the troika that the Greek government is serious, that the troika cannot just dictate the terms of an agreement,” Weisbrot said. “It is a real shot across the bow and it surprised them, too.”
Weisbrot believes that even if Greece defaulted, the troika of creditors would act to head off a Greek exit from the Eurozone. He cited as an example the case of Argentina, which defaulted on its debts to the IMF in 2003. But “the IMF backed down,” Weisbrot said. It reached a compromise with Argentina that included a new loan from the IMF on terms Argentina could accept in exchange for a debt repayment.
In Greece, “the IMF does not want a default either,” Weisbrot said.
In angry speech to the Greek parliament Friday, Tsipras nonetheless declared the two sides are “closer than ever” to reaching a deal.
What are the outstanding differences between the two sides?
In the dueling proposals from Greece and its creditors, a number of differences remain. A key sticking point is how much of a primary budget surplus, or budget surplus before interest payments, Greece should be required to achieve. The troika wants Greece to achieve a 3.5 percent primary budget surplus by 2018, while Greece maintains that anything more than a 1.5 percent primary budget surplus would prevent the Greek economy from growing at a healthy pace again. The troika is calling for Greece to achieve the budget targets partly through an increase in the value-added tax and cuts to pension benefits equivalent to 2 percent of Greece’s GDP, which Greece's ruling Syriza party finds unacceptable. And Greece is asking for half of the 144 billion euro principal it owes Eurozone member nations from the first bailout round to be cancelled entirely.
The seemingly arcane dispute is part of a broader conflict between Greece and the wealthy Eurozone nations that have shouldered the lion’s share of the bailout over who and what is to blame from the current crisis. Among the creditor nations, Germany in particular has argued that Greece's economic troubles are due to its fiscal irresponsibility. Germany has insisted that the bailout include provisions requiring Greece to reduce its spending and raise taxes, as well as deregulate the labor market and adopt anticorruption measures that would render the country more economically competitive.
Greece, for its part, claims that the austerity imposed by the international creditors has prevented the Greek economy from recovering, which has caused untold suffering and in turn made it impossible to repay the money it owes. Greece's GDP has declined by more than 25 percent since 2008; recovering slower from the 2008 crisis than the United States from the Great Depression, or Germany after World War II. Currently, one out of every three Greeks lives at or below the poverty line.
What happens next?
Since the IMF's managing director, Christine Lagarde, appears to have accepted Greece’s end-of-June payment bundling plan, the next major deadline is June 30. That date marks the end of the four-month extension passed in March to allow for the newly elected Greek government to negotiate new bailout terms with the troika. If the current agreement is again extended after June 30, though, the parties will have to contend with an even more onerous July repayment schedule. On July 13, Greece must pay another 465 million euros to the IMF. And on July 19 and 20, 3.5 billion euros that Greece owes the European Central Bank comes due. It is not clear that Greece has the funds to repay these debts and continue basic government functions.
Another possibility floated by some Greek officials is for Greece to have new snap elections that might reaffirm the Syriza-led government's mandate to renegotiate the terms of the bailout.
In the meantime, Tsipras is intent on pressuring the Eurozone countries in the court of public opinion.
"The strangulation of a country is a matter of moral order which conflicts with the founding principles of Europe," Tsipras said on Friday.
Correction: A previous version of this article misstated the reasons Greece might hold new elections. Snap elections might reaffirm the current government's mandate to renegotiate the terms of the bailout.
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