Greece and its lenders are locked in discussion. The
“Troika” of lenders – the European Union, International Monetary Fund and
European Central Bank – say Greece must take more painful steps to cut its
borrowing. But Greece faces riots and mass protests on the streets of Athens.
The government could lose its grip on parliament – only 155 of 300 MPs backed
the last round of austerity in June. At stake is the next 8bn euro tranche of
bailout money, which Greece desperately needs to avoid total crisis. Starting
from the top, follow the decision tree to decide what happens next.
-
Does Greece meet the Troika’s austerity demands?YES or NO
-
Recession deepens: Greece has to
cut its borrowing to a target set by the Troika. But austerity deepens Greece’s
recession. Along with mass tax evasion and strikes by tax collectors, this has
already made Greece over-shoot its target twice.Does Greece miss its borrowing target again?NO YES
-
Impasse: Greece has failed to
deliver promised austerity and the Troika has threatened to stop releasing
bailout loans. But without the cash, Greece faces a crisis.Does the Troika release the bailout money?YES NO
-
Greece has a funding shortfall:
Despite the austerity, Greece still needs more cash. The Troika can lend it, or
else Greece has to make more cuts.Should the Troika…demand more austerity?
or give another bailout? -
Greece has a cash crisis: The
government does not have enough money to pay for public services and must choose
which payments to skip.Does Greece stop repaying its
debts?YES
NO -
Austerity succeeds: After years
of painful cuts Greece does not need to borrow any more to fund government
spending. But Greece still has huge debts to repay.Does Greece renegotiate its debts?YES NO
-
The Troika blinked: Greece has
won the stand-off. The Troika is evidently too afraid of the conse- quences to
let Greece go bust.Does Greece continue with
austerity?YES or NO
-
Does the Troika bail Greece
out?YES or NO
-
Severe cash crisis: The
government cannot make basic payments like employee wages, benefits and public
services, and risks major civil unrest. -
Greek banks collapse. Even after halting
debt repayments, the government still can not pay all its bills. -
Economic
collapse: Speculation may rise that Greece will leave the euro, prompting a
run on the Greek banks.Does Greece exit euro?NO YES
-
PYRRHIC VICTORYGreece forces its lenders to write off most of its debts,
which probably bankrupts the Greek banks (its biggest lenders), meaning they
must be nationalised. Greece still may face years of low growth as its economy
is uncompetitive inside the euro. -
DEPRESSIONGreece may face years of grindingly low growth as its economy
is uncompetitive inside the euro. In addition, the government probably has to
pass even more growth-sapping austerity to cover the cost of its debt
repayments. -
MORAL HAZARDGreece has its lenders over a barrel, earning kudos with the
Greek public, and allowing it to slow down painful austerity. But Italy and
other high-debt countries may copy Greek tactics. Germany – which is now seen as
on the hook for bailing out the entire eurozone – may find it much more
expensive to borrow, and may consider leaving the euro. -
POLITICAL TURMOILThe Greek economy may face total collapse, with banks closed
and the government unable to pay for basic public services. This is likely to
cause massive civil unrest and a collapse of the government. Greece has already
seen rioting and the takeover of government offices. The CIA has warned of a
possible military coup. -
GLOBAL MELTDOWNSwitching back to the drachma leads to a huge financial and
legal mess. Italy and Spain may be unable to borrow and face a run on their
banks amid fears they may also leave the euro. Major European banks could
collapse sparking another global financial crisis. In Greece the drachma is
likely to plummet in value, boosting the economy, but causing painfully high
inflation.
source: http://www.bbc.co.uk/news/business-14977728
.
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