Greece Debt Crisis

The question of how to save Greece, debated for more than five years, is the European Union’s recurring nightmare. After the country’s citizens voted to reject the terms of a new bailout by international creditors, Greece is now veering closer to leaving the 19-nation eurozone and abandoning the shared euro currency, a move that could destabilize the region and reverberate around the globe.

Frustrated European leaders gave Greece until Sunday to reach a bailout agreement after an emergency summit on Tuesday ended without the Athens government offering a substantive new proposal to resolve its debt crisis.

 

Greece has since requested a three-year loan from the eurozone’s bailout fund, and it promised to make economic reforms as early as next week. The country’s finance minister said that Greece would submit a proposal by Thursday that lays out “a comprehensive and specific reform agenda.”

That’s the billion-euro question.

Greek citizens decidedly rejected the terms of an international bailout in a referendum last weekend. The Greek government’s victory in the referendum, however, settled little, since the creditors’ offer was technically no longer on the table.

All 28 European Union leaders will now gather at a summit on Sunday for what has been described as a final chance to resolve the Greek crisis.

The next major deadline for Greece is in late July, when a 3.5 billion euro payment that Greece owes the European Central Bank comes due. The E.C.B. on Monday said it would continue to make 89 billion euros, or about $98.4 billion, in emergency loans available to Greek banks. It is enough to keep the banks from failing but not enough to prevent them from running out of cash that they can issue to depositors within a few days.

If there is no international bailout program in place by the July deadline, and little chance of such a program being in the works, the central bank at that point would probably have to finally take Greek banks off life support. Many analysts say Greece cannot miss that payment without leaving the eurozone.

When borrowers — whether they are countries, companies or individuals — do not pay their debts on time, they are in default. For practical purposes, then, Greece — which on Tuesday failed to make a scheduled debt repayment of about 1.5 billion euros, or $1.7 billion, to the International Monetary Fund — has defaulted.

The I.M.F., however, does not use the term default. It instead places countries that miss their payments in what it calls arrears.

Semantics aside, missing the payment might lead to a situation in which other large Greek debts are classified as being in default.

A default, even when it is not called one, is an event that can have serious repercussions for a country’s economy and relations with other nations. Defaults can upset financial markets, create uncertainty for other lenders, and generally crimp economic activity.