Greeks sail into Grexit calendar and uncharted waters

Greece has entered a bleak calendar of last ditch attempts to prevent it falling out of the Eurozone and facing unknown domestic financial purgation.

18 June – slim hopes

Today's meeting promises slim hopes of any settlement, the likelihood being a perfunctory move on to the next meeting. As it stands there is an uninterrupted news flow about meetings, emergency meetings and contingency planning and super-emergency meetings which might work if their predecessor has not.

Senior economist Diego Iscaro of IHS Global Insight provided some analysis on this latest stage of the Greek crisis: "The lack of progress in the negotiations significantly increases the probability of Greece not making the €1.5bn [£1.1bn] IMF payment due at the end of June. However, this would not necessarily mean that Greece will default at the end of the month, as IMF's terms give a 30-day grace period after a payment is missed before declaring a country in arrears.

Shockwaves & higher volatility

Nevertheless, even if a technical default is not triggered yet, not paying the IMF would inevitably send shockwaves, not only in Greece, but also across the Eurozone. Deposit outflows in Greek banks are likely to accelerate, increasing the pressure on the government to introduce capital controls. Meanwhile, increasing uncertainty regarding the outcome of the negotiations will result in higher volatility in Eurozone financial markets (most likely through pressurising bond yields in the southern periphery countries), as well as weighing down on confidence levels.

But a deal is not impossible

We still believe that a deal, although difficult, is not impossible. Greece could accept a similar deal to the one currently on the table if it can find alternative measures to replace the pension cuts being proposed by the creditors and the Eurozone promises some debt relief in the future conditional to meeting certain fiscal and reform targets.

19 June

This meeting of finance ministers will see representatives from all 28 EU countries in attendance. The consensus here is that things are unlikely to change overnight – although one never knows. A failure to come to agreement again will likely lead to an emergency summit this coming Sunday.

Nigel Green, founder and chief executive of deVere Group, said: "Syriza's increasingly defiant tone strongly suggests that Greece's government is quite determined to leave the euro. It seems Athens now firmly believes that it is better not to blink in its negotiations with the IMF and the Eurozone institutions, and to be thrown out of the Euro as a result, than it is to stay in the Eurozone and have to reform the economy.

"It would appear that Prime Minister Alexis Tspiras' desire for power outweighs his desire for his country to remain in the Eurozone. He will be aware that if he bends to the austerity demands he will lose credibility, the hard-line left of his party will break away, and it is likely he would lose power."

21 June - Emergency Summit?

German Chancellor Angela Merkel and Greek Prime Minister Alexis Tsipras could reach an agreement amid such heightened political stakes.

22 June

If they do not, Monday could herald the start of capital outflows and bank runs, which would shove the Greek economy into a slow motion car crash. A bank run would mean the European Central Bank would stop its emergency funding, which is keeping Greece's financial system afloat.

Markus Allenspach, head of fixed income research at Julius Baer, said: "The problem is that the IMF-backed austerity policy has aggravated Greece's economic problem, and the contraction of the Greek economy by one quarter in the last four years has worsened the debt burden dramatically.

"With the benefit of hindsight, the debate should have focused right at the beginning on the implementation of reforms of the Greek economy rather than the taxation, and the former is only feasible through far-reaching EU interaction, not via an IMF examination.

"Second, the EU has laid the foundation of the current 'Grexit' debate itself when it debated the means and ways to expel Greece in 2011, and when it demanded the introduction of cross default clauses in sovereign bond prospects.

"Moreover, the EU also openly debated the need of a resolution regime for sovereign debtors in the eurozone, making it more feasible to let a government default on its debt. We have not got the resolution regime for sovereigns yet, but the ghost of the past debate is seemingly haunting EU politicians at this juncture.

25-26 June

This kicks off the start of an EU summit at which the prospect of a UK exit – Brexit – will be high on the diary. The meeting has a full agenda and the smart money says that if the Greek drama is not resolved by this stage it will be too late to salvage anything.

30 June

This is the date by which Greece must pay back €1.5bn in loan repayments to the IMF. To not pay would mean Greece enters an official state of "arrears" with the IMF, joining the likes of Cuba and Somalia.

1 July

Failing to pay what it owes would place Greece in a slow collapse that may well bring a public revolt against Tsipras's government. In respect of his government's vow to address austerity, this would certainly be a high cost of low living.

Eirini Tsekeridou, fixed income analyst at Julius Baer, said: "If Greece defaults on the €3.5bn bonds held by the ECB, which will mature on 20 July, the European Financial Stability Facility loans of €141.9bn are most certainly getting triggered as well.

"20 July, when the ECB bonds mature, is a harder deadline than the end of June when the IMF payment is due. We expect that an agreement will be reached, although we note that the likelihood of a missed payment is increasing."

20 July

This day, on which the country would fail to honour two bonds totalling €3.5bn, would mean the end for Greece inside the Eurozone. At this stage there would be fears that the diabolical and hysterical materialism the Greek government is facing could impact on other regions such as south eastern European (SEE) countries with the most exposure to Greece through financial, trade and investment linkages.

Evghenia Sleptsova, analyst with Oxford Economics, stated: "While trade exposures do not exceed 3.5% of GDP [in Bulgaria], banking sector exposures are much larger. Greece's four largest banks hold between 14% [in Serbia] and 22-23% [Macedonia and Bulgaria] of total banking sector assets in SEE, and their claims stand at 8%-19% of host countries' GDP.

"Exposures to Greece are only part of the problem in the SEE banking sector, which is suffering from a legacy of boom and bust dating back to the global financial crisis. Weak growth and inefficient debt-restructuring mechanisms prevented the repair of corporate and banking sector balance sheets, which continue to suffer from bad debts, weighing down on credit growth.

"Greek banks have been in a crisis mode for five years now, and a fair share of asset downsizing has already taken place, without having triggered a crisis.

"Most banks with Greek capital in the SEE are subsidiaries, which have limited reliance on parent funding for lending, and Greek parents can only withdraw statutory capital through a sale.

"Therefore the main transmission channel from a possible Greek default is a potential contagion, whereby a loss of confidence triggers a bank run, rather than direct linkages. Recent verbal interventions from central bank governors across the region suggest such pressure is mounting."