As of press time, Greece was still insisting they would not make their scheduled 1.6 billion euro payment to the IMF. Assuming the payment does not go through, what will happen?
Did the Greek people just stare into the abyss? Or is the abyss staring into the Greek people? For those who haven't heard, Greece and the Eurozone just went through a hair raising weekend. The bailout talks came to an acrimonious end as the two sides fell apart on the issue of whether Greece should increase revenues by raising taxes or cutting spending.
Tsipras wants the former, the Brussels Group wants the latter. And just like that, the EU was announcing it would not provide any more Emergency Liquidity Assistance to Greek banks and Syriza was taking the issue to the Greek people via a referendum. Then on Monday, it finally happened: the banks failed to open.
After an 8-hour deliberation on Sunday, Prime Minister Tsipris announced that the banks would remain closed until June 6th (the day after the referendum). The decree ordering the closure allows Greek bank account holders to withdraw no more than 60 euros per day from ATMs during the bank holiday. And with one fell swoop, all of those Greeks who were reported stuffing thousands of euros under their mattresses in the last few weeks were vindicated.
The referendum will be a vote on whether to accept the latest creditors' proposals as is. Tsipras is insisting that a “No” vote will not mean the immediate withdrawal of Greece from the eurozone. In fact, he is insisting that there is no mechanism in place in the eurozone to remove a member country and that Greece will file a court injunction to stop such a procedure if the EU initiates it. But it also seems inevitable that if the Greek people vote “Yes” and accept the bailout proposal that Tsipras' government rejected, it will be the end for Syriza.
Obviously this is a moving story and details are still emerging at press time, but here are some key questions to keep in mind as the flood of Greek stories hit the newswires in the coming days:
-If a “No” vote doesn't mean that Greece will leave the eurozone, what does it mean, exactly? The Brussels Group has already made it clear that their previous proposal is no longer on the table, so it seems like the referendum is meaningless at this point unless something changes between now and then.
-Why is China now getting involved in this mess? Chinese premier Li Keqiang came out earlier this week to note that “China wants to see Greece stay in the eurozone, and we urge relevant creditors to reach an agreement with the Greek government at an early time.” Are the Chinese planning to chip in to a possible bailout deal through the IMF? Would this be in return for inclusion in the SDR, or for greater voting rights at the IMF? If so, this will be a geopolitically and financially important turn in the story.
-What will happen on June 6th if there is still no deal in place? The banks can't be opened until there is further emergency liquidity to back them up, and there are already rumblings of a civil war over the capital controls that are now in place. The desperation of the Greek people themselves at this key time should not be forgotten, as it may be a key deciding factor on when, how and how much Syriza are willing to concede in order to get back at the table.
-Will there be a Cyprus-style bail-in after the banks re-open? If so we will be one step closer to the “new normal” of banking bail-ins around the globe.
And, the next shoe to drop:
-As of press time, Greece was still insisting they would not make their scheduled 1.6 billion euro payment to the IMF. Assuming the payment does not go through, what will happen? How will the IMF react to this, the first advanced economy to ever default on an IMF payment?
So, is Greece staring into the abyss or is the abyss staring into Greece? It remains to be seen, but what will follow in the next few days is a fascinating and horrifying example of what could play out in the very near future in other troubled European economies and, eventually, countries around the globe as the sovereign debt crisis mounts and the dominoes begin to fall.
There isn't much we can say for sure at this point, but one thing we do know: this is precisely the reason I have been advocating the creation and cultivation of complementary currency systems in these pages in recent years. They can close the banks and limit funny money fiat withdrawals, but they can't close a LETS system, a time banking system, or other types of local community currency. Let this be a lesson to all of us as we watch what happens in Greece.