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The Winter Olympics will be not only a competition between athletes, but also a geopolitical sparring ground. Lynn-Jones March Others note that the IMF may have the discretion to grant a grace period to Greece, especially given the referendum is just days away. There have been extensive debates about what this technically means and whether that constitutes a default. On the other hand, the IMF could also apply a four-week grace period before declaring a state of default. If it opted to do so, this could be bridging the time until after the referendum.
We actually think that this is a distinct probability. Owing the IMF means that the fund has already stepped in to support the economy.
Not meeting obligations with the Washington-based fund is rare — in fact it is unheard of for a developed economy. Greek debt therefore now represents per cent of GDP. In June Mr Tsipras walked away from negotiations with EU states ending any chance of securing financial assistance necessary for Greece to meet its immediate debt repayments. Instead Mr Tsipras put the decision on whether to accept the further austerity to a referendum.
The Greek people resoundingly rejected the austerity proposed by Greece's creditors with 61 per cent of voters rejecting the terms of the financial assistance package. Europe's Electograph reported that the campaign against the terms of the financial assistance won a majority in all regions of Greece.
While Mr Tsipras rallied support for a no vote, Greece defaulted on a 1. This made Greece the first advanced economy in history to default on an IMF loan. Any remaining confidence in the Greek financial system was extinguished and Mr Tsipras was forced to implement stringent capital controls to delay the collapse of the Greek financial system.
Greek banks were closed with no reopening date declared, citizens were limited to 60 euros in withdrawals a day, Greek credit cards were no longer accepted anywhere in the world, and Greek businesses saw trade collapse. Professor Walter explained that Greek leaders found themselves facing further "chaotic and highly costly defaults" and the potential collapse of the Greek financial system. Mr Tsipras therefore had "little choice but to give in to the creditors demands".
After a 17 hour Euro Summit meeting in Brussels it was announced that Greece had agreed to terms necessary to secure a third bailout worth up to 86 billion euros. The Euro Summit statement emphasises that the onus remains with the Greek government to commit itself fully to austerity measures, including increasing taxes on goods and services, improving the "long-term sustainability" of the pension system, and the continued privatisation of Greek assets.
With the plan approved by the Greek parliament, banks are re-opening, but with strict conditions. Given Greece's continuing reliance on significant financial bailouts and an existing debt of billion euros, questions remain on whether the country has the capacity to meet its debt obligations. The report states that Greece's ability make debt repayments is dependant upon the country achieving high budget surpluses and strong economic growth that has not yet been forthcoming.
The IMF therefore concludes that debt concessions are required to ensure Greece's debt remains sustainable.
Concessions on Greece's debt may come through extensions to the grace period in which no debt repayments need to be made, or by extending the duration of loans so that Greece has longer periods to make repayments. Professor Walter told Fact Check that debt relief, either through extending the term Greece has to repay its debt, or an actual reduction in the amount Greece will have to repay, remains a likely outcome.
Professor Walter said the parties may shortly be back at the negotiating table with "debt relief a likely consideration once the parties finalise the new restricted bailout agreement". While the ability of Greece to meet debt repayments remains uncertain, Bloomberg analysis indicates that should Greece default there is little risk of the default affecting the stability of other European states, or private companies. This is known as contagion risk.
European states have been the largest lenders to Greece and hold 62 per cent of Greek debt, totalling almost billion euros.
Of this, Germany and France have been the greatest individual lenders providing loans totalling 65 billion and 49 billion euros respectively. Mr Sbaihi stated that the large public ownership of Greek debt significantly reduces the risk of contagion as private sector creditors are not over-exposed to the high-risk debt. This simply means that should Greece default, the public sector creditors would be able to absorb the financial losses without falling into financial difficulty themselves.
Both Germany and France's share of Greek debt only amounts to 2 per cent of the size of their respective economies. The Bloomberg analysis therefore finds that there is little risk that creditors would fall into financial difficulty were Greece to default on its loans. This is because only a small amount of Greek debt is held by private companies, and losses would not be widespread across global financial markets, while the rest is held by governments and large public institutions with economies large enough to absorb losses were Greece to default.
Despite Greece receiving a third bailout in July, the ability of the country to meet these debt repayments over the long-term remains uncertain. The IMF has noted that Greece's ability to repay its debt is dependent upon the country achieving difficult budget surpluses and economic growth.
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