(AGI) Rome, June 26 - Until a few months ago, to hint at aGreek default was off limits: a scenario that top-rankingofficials at institutions involved in the feverish negotiationson Athens's debts refused even to take into consideration.However, as negotiations get more and more complex with thepassing of hours, it is impossible to go on hiding one's headin the sand. Athens is due to repay the IMF 1.6 billion euros by Tuesdaynext. Should Athens fail to pay, two weeks after theend-of-the-month deadline, the Washington-based Institutionwould send Greece a reminder and, after a further two weekswithout receiving the amount due, the IMF's managing directorwould inform the executive board of the debtor's state offormal insolvency. At this point the other creditors would beentitled to ask for immediate settlement of notes and otherinstruments held by Athens, which sits on a pile of debttotaling more than 310 billion euros. At the same time, creditdefault swap contracts would kick in. Greece's only source ofliquidity at present is the funds provided to Greek banks bythe European Central Bank (ECB) under the Emergency LiquidityAssistance (ELA) provision. These funds are subsequentlyre-invested by the banks to buy Government bonds and could nolonger be used if the banks were to be considered insolvent andtheir collateral inadequately guaranteed. A suspension in theflow of ELA funds would trigger a bank run (already underway),which would crush the Greek banking sector. It is not evencertain that eventual control imposed over short-term financialflows could be effective, in view of the huge size of thiscountry's underground economy. One thing is sure however: suchan event would unleash a chain reaction whose consequences, toocomplex to foresee, would ultimately deliver a terminal blow tothe Greek economy devastated by years of spendthrift wastefollowed by a period of too rigid austerity measures. Greece'sdefault could also automatically trigger the 'Grexit', an exitfrom the eurozone, whose consequences would be even lesspredictable and even more difficult to quantify. The onlyunarguable fact is that neither Brussels, nor Washington, norFrankfurt can continue to pretend, as they seem to have doneover these past long and unsuccessful months of negotiations,that the problem does not exist. (AGI) .
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