As Greece is scrambling to raise the 350 million euros it has to pay to the IMF, a Greek euro exit is in the cards again.
Greece owes the IMF more than $20 billion, and the International Monetary Fund is the one entity that Greece cannot afford to alienate because it is the absolute lender of last resort. If it doesn’t pay the IMF, the country will go back to square one, without any type of foreign capital.
So the country is scrambling to raise the cash, using some unconventional means. Reports from Greece suggest the country has tapped national pension funds as well as utility companies to fork up the cash.
Needless to say, this practice cannot continue for much longer, so what are the probabilities of Greece staying in the euro?
Morgan Stanley assigns a 40 percent probability of Greece staying in the euro.
“This is still our base case but, compared to our previous assessment of 55 percent, we think that the chances of this outcome have diminished. [It’s difficult to find] a middle-ground solution, mostly given Greece’s political constraints domestically, and Europe has little appetite for further slippages.”
Negotiations between Greece and Germany, the leading creditor nation, have been tense and sometimes bordering on the insulting.
Nonetheless, according to Morgan Stanley, a Greek euro exit is still quite unlikely. “This would happen if the lack of a compromise led to bitter negotiations, then a worsening in market reaction, negotiations ultimately failing, and Greek banks being cut off from ECB funding.”
Europe would need to decide that a Greek exit would cause few problems and the impact could be contained. This could likely be the case as most of Greek risk has been transferred from fragile European banks to the official sector, like the IMF and the European Central Bank.
So even in the case of a euro exit, Greece would still have to pay the IMF. It would save itself the trouble of further negotiations with Germany, however.