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What would a suspension of payments within the Eurozone imply for Athens? Kathimerini talks with former market employees and factors to get an idea of the consequences of such a decision, which would drag both the country and the Eurozone into unknown territory.

Two possible forms of payment suspension are least likely - as long as others, which carry a less steep political and economic price, still exist. The first is the much bandied about issuance of promissory notes instead of paying salaries and pensions. This would be tantamount to an introduction of a parallel currency. If he chooses this option, Alexis Tsipras will expose himself to a charge, which he often deployed from the opposition's benches in parliament: that he prefers to serve the state's commitments to creditors instead of catering to the needs of citizens.

The second forlorn choice is the non-payment of debts to the few private creditors of Greece. Any suspension of payments would activate cross-default clauses and lead to a credit event. This in turn would directly entail insolvency for the Greek banks: they would be forced to trim the value of their treasury bills worth €15 billion, hence all government securities in their portfolios would become worthless as collateral in obtaining liquidity from the European Central Bank. In addition, assets from deferred tax liabilities of banks, which in some cases are a substantial part of their capital, will be in an undefined state in the event of a state bankruptcy.

Given the timing of payments over the coming weeks, Greece’s creditor which is most likely to remain unsatisfied is the IMF. In the event of this happening, a bunch of pretty concrete procedures will come into play. The IMF will immediately dispatch a letter requesting a transfer of the overdue amount ASAP. The following days will see mounting pressure. If a whole month elapses without any positive development, Mrs Lagarde will inform her Executive Board that Greece is in arrears. And this might actually happen much earlier, if it becomes clear that there will be no payment.

According to the loan agreement between Greece and the EFSF, failure to pay one's obligations to the IMF constitutes an event of default. At this point, the EFSF has two available options. One is to immediately call back the whole debt of Athens, or a total of €140 billion. This would trigger the cross default clauses in the private sector, and therefore will not happen as it would bust the EFSF itself. The second choice is the cancellation of the credit agreement, which means that Greece will not receive any other funding from the facility.

The key question is how the ECB will choose to play its cards. The already existing pressure in the Executive Board to limit the appliance of the emergency liquidity mechanism (ELA) to Greek banks is likely to shoot through the roof. Another important factor is the rating agencies, which will have to decide whether to reduce Greece's credit worthiness. Two of them, (S&P and Fitch), however, announced recently that defaults on debt to official creditors does not necessarily amount to a credit event.

Extension

Theoretically, all this can be avoided if some of Greece’s instalments to the IMF were rescheduled, something that has frequently happened in the past. If this were to happen, Athens needs to reach an agreement with Lagarde, which would entail stringent conditions on the policies to be implemented by the Greek government. Athens also needs to convince ECB’s head, Mario Draghi, to continue injecting liquidity into its banks.

Failing this, it will be necessary to reschedule payments along with stricter capital controls. Yannis Varoufakis has reportedly tested the ground for such an extension during his meeting with Lagarde, but received a resounding ‘no’.

No country has suspended its payments to the IMF since its establishment in 1945. Overdue debt (by 6 months or more) to the Fund in March 2015 reached €1.66 billion: a lesser amount than the one, which Greece must pay over the next 50 days. The list of bad debtors to the IMF comprises three countries: Somalia, Sudan and Zimbabwe.