Greek eurozone crisis: In or out, financial future is far from rosy – The Guardian

Why are eurozone leaders holding yet another make-or-break Greek summit?

Despite a series of fraught meetings, Greece is still on the brink of default, and eurozone leaders, preceded by their finance ministers, are due to meet tomorrow in another attempt to strike a deal.

Time is running out: the country's banks are facing a debilitating run on their deposits as nervous savers take out their cash. Greece's chief negotiator, Euclid Tsakalotos, has said Athens can't pay €1.6bn (£1.1bn) due to the IMF on 30 June unless its creditors release €7.2bn in bailout funds that have been held up pending an agreement on fresh economic reforms.

How far apart are the two sides?

On paper, the gap looks relatively narrow – €2bn or so – but there are issues of principle at stake. In particular, Greece is refusing to agree to pension reforms that creditors say are essential; and Athens wants talks on debt relief, which lenders are refusing to agree. The mood music is also grim. When Thursday's gathering of finance ministers broke up with no agreement inside little more than an hour, the IMF's managing director, Christine Lagarde, pictured, said there would only be progress "with adults in the room". A defiant Alexis Tsipras responded by flying to St Petersburg to stress his solidarity with Russia and insist that, while Greece is in a "whirlpool", he is "not scared of the sea".

Could they still do a deal?

Yes. Either side might blink at the last minute – Angela Merkel is unlikely to want to be the German leader who allowed the unravelling of the eurozone, and even the radical Syriza government may fear the consequences of plunging out of the single currency. But if Syriza makes large concessions, it would have to tackle a domestic political rebellion.

What if no deal emerges?

Without an agreement, Greece will be forced to miss its payment to the IMF, which Lagarde has suggested would immediately be treated as a default.

Grexit would not necessarily follow, but if Greece has lost the financial backing of its creditors it may decide that the best hope of economic recovery lies outside the single currency.

Its fellow euro-members may even hold open the exit door if they judge that a managed departure would have the least damaging consequences for the rest of the eurozone. There would also have to be capital controls to shore up the fragile Greek financial system.

Some analysts believe the state of the banks may make capital controls necessary even before the end of the month. One said: "The 'perfect storm' hitting the Greek banking sector, which includes a deteriorating economy, increasing non-performing loans and large deposit outflows, may oblige the government to implement capital controls even before the default materialises."

How would financial markets react?

Probably with horror. While it has been a real possibility for some time, the fact that the single currency is not irrevocable would still be likely to send tremors through eurozone equity and bond markets.

What about the long-term future for Greece outside the eurozone?

Nobody knows. It's just possible that "re-drachmatisation" could help to kickstart growth, but Greece still has deep economic problems and, as the long-running saga of Argentina's default shows, there are no set rules that allow a country to walk away from its debts.