Grexit: For Real This Time?

Sometimes the soberest, most rational analysis can be replaced with a simple fairy tale. And that is the point we’ve reached in Greece’s on-again / off-again sovereign debt crisis. It’s become a modern-day case of The Boy Who Cried Wolf.

We’ve heard for the better part of five years now that a Greek debt default was imminent and that once it happened, we’d have a Greek exit (“Grexit”) from the Eurozone and a disaster of Biblical proportions, complete with human sacrifice, dogs and cats living together, and mass hysteria, to take a line from Ghostbusters.

Investors stopped reacting to Greek news a long time ago. But what if…just if…it really happens this time?

Greece is running out of money, and in order to secure a full payment of its bailout funds, Greece has to present a credible reform package by Friday.

Sounds easy, right?

Wrong. In order to come up with a credible reform package—which would include committing to the labor reforms made by the previous government, reducing pension benefits and continuing to privatize state assets—the ruling Syriza party would be breaking virtually every promise it made to get elected, which would probably lead to its fall.

We’ll see. Past deadlines have proven to be, shall we say, “flexible.” My bet is that Greece and its creditors agree to a list of ambiguously-worded promises that allow both parties to save face and kick this can a little further down the road. Greece will get whatever minimal lifeline it needs to avoid a default, and we repeat this process ad nauseam.

But what if I’m wrong? What if Friday passes without a deal, positions harden, and Greece pushes forward without bailout aid? Greece has a major IMF payment due on May 12 that it would most likely be unable to pay. This would be a Greek default…and would lump Greece in with some truly elite company. Somalia, Sudan and Zimbabwe are the only countries to ever be late on an IMF payment. A Greek default will almost certainly mean a Grexit, as Greece would be left with no other choice than to print money to pay its bills.