Greek Debt Update: Is a Default Still Possible?

And the debt saga continues! Even though the anti-austerity Greek government managed to strike a last-minute agreement with its creditors earlier this year, the worst isn’t over for the debt-ridden nation. Recall that Greek Prime Minister Alex Tsipras and Finance Minister Yanis Varoufakis were able to buy a bit more time to clean up the country’s finances back in February, yet not much progress has been made since then.

greece euro exitTime is running out for the Greek government, as they’ve already passed the halfway mark of their 4-month loan extension to come up with a set of economic reforms and secure the next set of bailout funds. Eurogroup leaders have given Tsipras and his men until April 24 to submit their revised economic reform plan before giving the go-signal to provide the additional funding needed to prevent Greece from defaulting and possibly exiting the euro zone.

Over the weekend, Varoufakis mentioned in an interview that a “Grexit” would have an inevitable contagion effect on the rest of the euro zone nations. “Anyone who toys with the idea of cutting off bits of the euro zone hoping the rest will survive is playing with fire,” he reiterated. He also pointed out that market watchers might start speculating about a euro zone breakup once Greece is kicked out of the monetary union.

As the deadline looms closer, more and more forex market participants are doubting that the Greek debt drama will have a happily-ever-after ending. After all, Greece’s rebellious government officials are refusing to budge from their anti-austerity stance while the EU and IMF are also playing hardball. Well, someone’s got to give!

On one hand, Greek government officials are scrambling to keep its economy afloat, as previous austerity measures have plunged the country into its worst recession. On the other hand, creditors are tired of putting up with Greece’s inability to pay back what it owes.

At the moment, the EU and IMF are frustrated with the Greek government’s decision to INCREASE its pension payments to lower-income workers, as they’ve already urged for a significant reduction in social spending. Finance Minister Varoufakis insisted that Greece can still afford to repay its loan obligations, but Eurogroup leaders have pointed out that the numbers don’t add up and that they have yet to see a comprehensive and detailed plan.

A few economic experts suggested that a debt “haircut” would be a reasonable compromise for both the Greek government and its creditors. This way, Greece might not need to implement further belt-tightening measures and have a better chance at getting back on its feet and eventually repaying its debt. Others suspect that Greece has already made an informal request to the IMF to extend the debt deadline once more, but IMF head Christine Lagarde clarified that the institution hasn’t granted a payment delay in over 30 years.

For now, it’s tough to tell whether the Greek debt drama will have a tragic end or not. Any updates on the situation could have a strong effect on the euro in the coming days, as these could spur more buzz about a “Grexit” or potential contagion. Better be quick about making any forex trade adjustments if necessary!