Greek crisis deepens as loan repayment deadline passes
Greece's midnight deadline passed Tuesday for repaying $1.8 billion to the International Monetary Fund and other international creditors, deepening a financial crisis that threatens the Mediterranean nation's membership in the European Union.
Despite an eleventh-hour effort by Greek lawmakers Tuesday to secure a new two-year debt deal before the deadline, European finance ministers reviewing Greece's proposal concluded their conference call without offering a bailout extension.
The ministers agreed to convene again Wednesday to further discuss the details of a new series of loans from the eurozone's European Stability Mechanism, its $560 billion rescue fund.
After the deadline passed (at 6 pm ET), Greece joined Zimbabwe, Sudan and Somalia in being in arrears to the IMF. Fitch Ratings has downgraded Greece's government debt further into junk territory.
Standing in the way of any new deal from the IMF and other creditors is Sunday's Greek referendum on whether to accept the terms that would come with a new aid package, which includes tax increases and spending cutbacks after years of recession. There is some dispute over whether such a referendum could be canceled, with some Greek lawmakers arguing that the vote is now set in stone.
Late Tuesday, thousands of Greeks took to the streets of Athens, many of them in support of accepting new bailout terms. A "no" vote would lead to Greece leaving the European Union and abandoning the euro currency.
The $1.8 billion Greece owes is part of a $270 billion aid plan it received from the IMF, the European Central Bank (ECB) and the European Commission — 19 eurozone governments — during its financial crisis.
German Chancellor Angela Merkel made her position clear Tuesday, telling reporters in Berlin, "We'll negotiate about absolutely nothing before the planned referendum is held."
Prime Minister Alexis Tsipras has said that his government would step down if "yes" votes prevailed, telling a Greek public broadcasting outlet Monday, "We'll choose in a sovereign way what our future will be like, we will insist on negotiating."
President Obama cautioned that a failed Greek economy could have significant ripple effects on markets around the world, adding Tuesday that "what you have here is a country that has gone through some very difficult economic times, and needs to find a path toward growth and a path toward staying in the eurozone."
Eurogroup President and Dutch Finance Minister Jeroen Dijsselbloem talks to the press in the Senate (Tweede Kamer) at the Binnenhof in The Hague, The Netherlands, 30 June 2015, after a short phone conversation with euro zone finance ministers about the Greek crisis. (Photo: Bart Maat, EPA)
But should there be a so-called Grexit — or Greek exit from the European financial community — Obama added that "it is important for us that we plan for any contingency, that we work with the ECB and other international institutions to ensure that some of the bumps that occur in the financial markets are smoothed out."
Greece had previously indicated it would not be able to make the payment. The IMF said it would not give Greece its customary 30-day grace period before issuing a notice of technical default.
But Athens is not expected to immediately go bankrupt. That would only happen if its non-payment triggers further defaults in its financial system, which is not expected.
Next month, on July 20, Greece is also due to pay the ECB $3.9 billion.
Talks between Greece and its creditors have broken down as Athens has tried to negotiate less onerous repayment terms, mainly centered around austerity measures. Global markets on Monday tumbled over fears that the country's attempts to strike a better deal could see it forced out of the eurozone. Its membership in the European Union is also at stake.
But markets bounced back Tuesday in Asia, and European indexes moved away from earlier losses after steep sell-offs in those regions helped push the Dow down 350 points in the prior session — its biggest one-day point loss since June 20, 2013.
On Tuesday, U.S. markets edged higher, buoyed by Greece's new proposal that came against the dominant crisis narrative of the last 48 hours.
Earlier, citing unnamed government sources, Greece's Ekathimerini newspaper reported Athens was reconsidering a previous proposal by European Commission President Jean-Claude Juncker. No details were provided.
A T-shirt supports a "Yes" vote on Sunday's Greek
A T-shirt supports a "Yes" vote on Sunday's Greek referendum on whether to accept new financial assistance along with austerity measures. (Photo: Milos Bicanski, Getty Images)
A Greek eurozone exit, it is feared, would reignite the financial contagion experienced during the sovereign debt crisis of 2009 and beyond when billions of dollars were wiped off the value of European government debt and other assets.
Still, while many analysts and officials have warned that Greece leaving the eurozone could have far-reaching consequences for economies and markets across the world, the specific impact of that possible development remains mostly unclear.
"If Greece leaves the eurozone, there is unlikely to be a big bang moment when the country adopts the drachma (the currency it used prior to adopting the euro in 2001)," said Mark Zandi, chief economist at Moody's Analytics, a unit of the ratings firm.
"It will happen over time, as the Greek government issues IOUs that effectively become the new currency," he said.
Greek Prime Minister Tsipras hinted Monday that he may resign if his nation votes "yes" in the referendum Sunday. Tsipras' leftist Syriza party insists the vote is being called to strengthen its negotiating mandate with its creditors.
"If the Greek people want to proceed with austerity plans in perpetuity, which will leave us unable to lift our head, we will respect it, but we will not be the ones to carry it out," he said on Greek television late Monday.
European leaders including Italian Prime Minister Matteo Renzi and French President Francois Hollande dispute that. They say that Sunday's vote will effectively be a referendum on whether Greece wants to remain part of the eurozone.
The government has limited cash withdrawals from banks to about $68 per day in a bid to stave off bank runs and keep its financial system from collapsing, triggering protests from groups on both sides of Sunday's yes or no vote.