If European leaders continue dragging their feet, Friday, March 23rd could be the day that Greece declares bankruptcy.
Here is why, and what actions can be made to kick the can further down the never ending road and prevent such an announcement.
This date sounds makes sense. Greece has to pay back over 14 billion euros of bonds on March 20th. It’s important to remember that it has 7 days of grace, meaning it has time until March 27th.
In addition, this sum may be reduced due to the bond swap. If things go wrong prior to this date, leaders will likely seem to work on finding a solution for the rest of the cash, during the grace period.
March 23rd is a Friday, and according to the aforementioned unconfirmed reports, Greece will announced a bankruptcy at the end of the business day, announcing a bank holiday to prevent capital flight and to allow for stabilization.
The weekend will allow for an attempt to calm the public and working on a return to the Greek drachma while markets are closed.
Markets’ reaction will likely be relatively muted when such a big event happens over the weekend and not in the middle of the week. The reaction will still be strong, but not as shocking. We’ve seen it with the historic downgrade of the US credit rating by S&P.
Potential Savior: A Bridge Loan
Leaders seemed to be working hard to prevent a default and to reach a wonderful bailout deal. They will likely show the same efforts in the days before Greece’s payback day.
The optimistic scenario is that they will not fake it, but do find a temporary solution and settle for a bridge loan. This idea was already discussed in the past. It will be another kicking of what’s left of the can down the road, but this is possible.
The logic for that is that not all the plans for a Greek default (“grefault”) or a Greek exit of the euro zone (“grexit”) will be in place. Given the behavior of leaders so far, the chances are low.
Chances are higher for cutting the losses.
This article is part of the special report about the Greek endgame and everything that rocks euro to dollar in March. You can download it by joining the newsletter in the form below, which appears on any article on Forex Crunch.