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Eurozone Prepares for Greek Summit; Default Risks Increased

Eurozone Prepares for Greek Summit; Default Risks Increased

Yash Gandhi, Contributor

Talking Points:

  • There is an extraordinary Eurozone Summit on Monday to attempt and clinch a Greece Deal
  • ECB provides an additional €3.3B in emergency liquidity funding today
  • EUR/USD experiences continued volatility amidst Greek uncertainty

The Eurozone’s finance minister meeting on June 18th closed the door on a resolution this week and increased the risk of a Greek default. Greece was unable to secure a deal with the Eurozone and remains at risk of default. Stressing the state of the situation, Eurogroup President Jeroen Dijesselbloem said no agreement was in sight. Since then a crisis Eurozone Summit has been scheduled to occur on Monday June 22nd in hopes to keep Greece financially solvent.

Greek banks have been hit the hardest throughout the ongoing debt crisis. An estimated €4.2B has been withdrawn from Greek banks this week. The Emergency Liquidity Assistance for Greek banks was raised by €3.3B providing additional relief through Monday June 22nd according to a Greek official. The European Central Bank has accelerated emergency funding for the Bank of Greece as the crisis deepened. Currently, those funds total €84.1B.

Greece’s situation has continually deteriorated this week after Greek Finance Minister Yanis Varoufakis failed to reach a deal with the Eurozone. A key IMF payment that represents the bundled and deferred payments due this month is owed on June 30th and the group has called for reasonable proposals. The proposals have called for firmer austerity measures to which Greek Prime Minister Alexis Tsipras called a “criminal responsibility”. European Economic Commissioner Pierre Moscovici claimed the Eurozone would work night and day to secure a deal to avoid a Greece default. Angela Merkel, Chancellor of Germany, has called the Eurozone Summit Greece’s “last opportunity” to seize a deal.

Greece owes the IMF €1.6B, a figure that the country has said it is unable to pay by the deadline unless the creditors release additional funds. The debt-stricken country is working to unlock €7.2B of aid that has been frozen since last year, but officials on both sides have increasingly shifted towards seeking a long-term and lasting solution. However, the Eurozone is unwilling to release the funds until Athens agrees to a credible reform program that is agreed upon between the IMF, European Central Bank, and the Eurozone (‘The Institutions’).

The Institutions and Greece do agree on certain payment strategies going into Monday’s Eurozone summit. Debt-forgiveness is an option that has been remarked on in talks between the IMF and Greece. Some have suggested Eurozone could approve a potential ECB bridge loan enabling it to make a payment to the IMF until the deal is completed.

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