Greece Loses Access to 16 Billion Euros: Referendum to Decide Fate
Greek Default: What Are the Implications for Investors?
Greece loses access to 16 billion euros of funding
As a result of its default, made official on June 30, Greece has been cut off from any further IMF (International Monetary Fund) funding until the payment is made. It doesn’t have access to over 16 billion euros—$18 billion—of untapped financial support that it could have still garnered from the IMF.
Greece has new demands
Greece (GREK) has now asked the IMF for a new two-year aid worth 29.1 billion euros—$32 billion—from the ESM (European Stability Mechanism). The ESM was established for emergency bailout funding. If the aid is given to Greece, it will be the third time Greece has received aid in the last five years.
Europe isn’t interested
Meanwhile, German Chancellor Angela Merkel has stated that Germany (EWG) won’t entertain any new Greek request until after the Greek referendum. It’s scheduled for July 5.
On Friday, June 26, Greece’s Prime Minister Alexis Tsipras announced that a referendum will take place on July 5. Greek voters will have two choices:
Accept the terms of its creditors – this would mean accepting the austerity requirements
Reject the terms – this would lead to a situation where Greece may have to default on its debt. This could perpetuate the need for a “Grexit.”
We’ve covered the implications of a Grexit—Greece exiting the Eurozone. Read Exiting the Eurozone: The implications of a ‘Grexit’ to learn more.
The euro could fall more
A Grexit could cause the euro to fall more. It’s already low due to the monetary stimulus induced in the economy by the ECB (European Central Bank). A depreciated euro benefits exporters in the Eurozone like Dutch semiconductor firm ASML Holdings (ASML), Belgian brewer Anheuser-Busch InBev (BUD), and Italian pipe producer Tenaris (TS).
The troika—including the European Commission, the IMF, and the ECB—wants Greece to raise taxes and cut welfare spending to meet its debt obligations. The troika wants these mandatory reform measures to be implemented before any new debt or financing is released to Greece.
Recently, the Greek debt was downgraded by credit rating firm Standard & Poor’s.
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