Barclays: Greece unlikely to pay €3.5 billion on bonds held by the ECB on July 20

Years of uncertainty and economic pain spent keeping Greece in the eurozone boils down in June to a handful of make-or-break debt repayments, while a raft of key data in the next few days will point to the progress of the global economy.

The threat posed to the wider world by an eventual Greek exit from the euro may have diminished over the last few years, but last week the United States warned of an “accident” for the world economy if Greece and its creditors miss deadlines this coming month to avert a debt default.

Most analysts think Greece has enough cash and options to avoid default when a roughly 300 million euro  payment falls due on June 5 to the International Monetary Fund (IMF). What happens in the subsequent weeks is less clear.

“We believe meeting the 1.6 billion euros in payments to the IMF by the end of June will be difficult. Payments of 3.5 billion euros on bonds held by the ECB on July 20 appear even more unlikely,” said Michael Gapen, economist at Barclays.

“Without an agreement, Greece could descend into what would effectively be an exit from the euro area, where defaults and capital controls become a permanent feature.”

Gauging the likelihood of a substantive agreement is difficult because of a clear difference in tone between Athens, optimistic of striking a deal soon, and its far more cautious creditors.

Greece’s left-wing government — elected in January to fight austerity measures imposed by its international lenders — indicated at the weekend it could compromise on some of its demands, although it didn’t specify how.

“The antipathy towards more austerity with the general public and (Greek governing party) Syriza is a major sticking point and means a quick resolution is unlikely if it means Greece has to capitulate,” said Ben May, economist at Oxford Economics.

Still, analysts polled by Reuters last week put a less than one-in-three chance on Greece leaving the euro zone this year.

Mark Zandi, chief economist at Moody’s Analytics, believes that the global economy is now “largely inoculated” from Greece because European banks are in better shape than they were a few years ago.


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