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Auf Wiedersehen Griechenland

By Jonathan J. Ariel - posted Thursday, 2 July 2015

Wednesday, 1 July was not only the first day of Australia's new financial year.

It also marked the day when the Hellenic Republic became a developed country in default, without a bailout program, without a currency it can control and with a government that wants to simultaneously denounce the terms of any bailout offered, yet keep its hand out in anticipation of more euro generosity.

Go figure.


On Tuesday, Athens failed to make a payment to the International Monetary Fund of €1.6 billion. To the man (and woman) on the street this is a default. But to the IMF, Greece is merely "in arrears".

Also on Tuesday, the Finance Minister of Bavaria, Markus Söder was optimistic, speaking on Deutschlandfunk Radio indicating that "I believe that in the end, a cleanly prepared and reasonably organised Grexit would be the best way".

To put things in perspective, Bavaria has a population of 12.5 million and is the fourth richest state in the Bundesrepublik. Its GDP per capita of €35,443 puts Greece's €16,290 with a population of 11 million to shame.

The day before, on Monday, German Finance Minister Wolfgang Schäuble was interviewed on ARD public television where he was quoted as saying "Greece has announced that it won't pay the IMF, that means that any future payments from the IMF will be cancelled".

Sensibly, he will not support good money chase after bad.

In the absence of an additional program to ensure the continued smooth functioning of the Greek banking system, serious problems will confront Prime Minister Alexis Tsipras and his Finance Minister (and political economist) Yanis Varoufakis.


Under the terms of Greece's contract with the current bailout program (known as the European Financial Stability Facility agreement withThe Hellenic Republic) default is clearly defined and includes any non-payment to the IMF:

Part 9. Events of Default

(1) EFSF may, by written notice to the Beneficiary Member State cancel all or any part of the Facilities (or any of them) and/or declare the aggregate principal amount of any or all Financial Assistance made and outstanding under the Facilities to be immediately due and payable, together with accrued interest and all other amounts due in respect thereof; if:

(j) Any loan agreement or agreement for the provision of financial assistance between the Beneficiary Member State or HFSF [being the Hellenic Financial Stability Fund] and any institution or body of the EU, the IMF or any other Financial Support Provider, regardless of amount, is the subject of a declaration of default.

Such a scenario allows the European Financial Stability Facility the power to extinguish any part or all of its facility or even calling the entire loan to be repaid immediately. If the creditors so wish, a demand for the payment of €142 billion can be made.

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About the Author

Jonathan J. Ariel is an economist and financial analyst. He holds a MBA from the Australian Graduate School of Management. He can be contacted at

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