“Failure to reach an agreement would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely – from the European Union,” the Bank of Greece said in a reportpublished Wednesday.

“Failure to reach an agreement would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely – from the European Union,” the Bank of Greece said in a reportpublished Wednesday.

The Bank of Greece submitted today its annual Report on Monetary Policy 2014-2015 to the speaker of the Greek Parliament and the cabinet.

At the time of writing of the report, news kept unfolding, especially as regards the negotiation of a financial support agreement. As of today, the negotiations are still ongoing. As the Bank of Greece had assessed in its Governor’s Report for the year 2014, the conclusion of a new agreement with our partners is of the utmost importance to fend off the immediate risks to the economy, reduce uncertainty and ensure a sustainable growth outlook for Greece.

Athens must pay 1.6 billion euros off its debts at the end of the month to avoid a possible default and secure its cherished place among the 19 countries using the single currency for a little longer.

Greece needs new financial aid from creditors to be able to make the June 30 date with the debt collector. A deal is still nowhere in sight, though, with both sides refusing to compromise over what reforms Greece should make in exchange for more loans.

Technically, a country cannot leave the euro. These are uncharted waters. European Union treaties legally allow members to leave the 28-nation EU, but no mechanism was foreseen to let countries leave the euro. Theoretically, if all 19 nations agree that it’s time for Greece to go then a ‘Grexit’ could be negotiated. Some argue the country might have to leave the EU altogether to leave the single currency.

Thepointof no return would be when the European Central Bank decides to cut off emergency credit to Greece’s banks.

That could happen if there is a run on Greek banks — in which case theECBmight not want to risk its money supporting them. Concerns over a run on banks could grow if it becomes clear that Greece will default on its next debt repayment, due June 30.

TheECBcould also cut Greek banks loose if the country defaults on debt repayments due to theECBin July and August.

After leaving the euro, Greece could go back to using the drachma or introduce a new currency. Either way, volume is essential, and that implies serious challenges. Iraq faced similar issues when it introduced a new dinar in just three months following the US-led invasion.

Greece’s bills won’t go away, and the jury is out on whether they could be converted to a new currency, although Greece would probably try to redenominate and renegotiate the debt. The one advantage in this for Athens is that all kinds of loans would probably be written down by its creditors.

http://www.neurope.eu/article/grexit-inevitable-if-no-deal-is-found-says-bank-of-greece/