This analysis of Greece's debt plight - and the implications of a default - is important reading for private bankers with clients who might have potential exposure, and for banks themselves.

This publication has occasionally published expert insights from IHS, a geopolitical and business risk analysis and research firm. The commentary here is by its senior economist Diego Iscaro and senior country analyst Blanka Kolenikova. This publication is grateful for such commentary although it doesn’t necessarily agree with all the views expressed. Readers who want to respond should contact the editor at tom.burroughes@wealthbriefing.com

Key points:
- The risks of a default have increased significantly in recent weeks and will continue to do so as long as there is no agreement between Greece and its official creditors
- Although a default would not necessarily mean a Greek exit from the eurozone, in our view it could trigger a series of events that would make this extreme outcome more likely
- The chance of Greece reaching a deal at the Eurogroup meeting is very slim
- Realistically, this means that Greece is unlikely to receive official funds until at least the next Eurogroup meeting, which is scheduled for 11 May
- Assuming Greece pays the loan maturing at the start of May, it could not technically be in default with the IMF until mid-June.

Analysis:
Without access to bond markets and unable to increase its stock of Treasury bills, Greece is reliant on the disbursement of official loans to cover debt repayments as well as current spending.

However, it is now clear that the chances of Greece reaching a deal to unblock the funds during the coming Eurogroup meeting on 24 April are very slim. Realistically, this means that Greece is unlikely to receive official funds until at least the next Eurogroup meeting scheduled for 11 May. However, given the lack of progress on negotiations so far, this also seems unlikely at this stage.

This creates significant uncertainty regarding Greece's ability to pay its bills over the coming weeks and months. Greece's liquidity squeeze has been clearly illustrated by the government's decision earlier this week to oblige public bodies, such as pension funds, to transfer their cash reserves to the central bank. Greece's deputy finance minister, Dimitris Mardas, said the government expected this measure to increase the state's coffers by around €2.5 billion ($2.7 billion).

No default until mid-June at earliest
The possibility of Greece being unable to make a €775-million repayment to the IMF due on 12 May is relatively high, if no official funds are disbursed by then. It is important to note that a missed payment would not trigger a default immediately. Under the terms of the loans, the IMF would not declare a default until one month after the date of the missed payment. Therefore, assuming Greece pays the loan maturing at the start of May, Greece could not technically be in default with the IMF until mid-June.

Missed payment implications
A missed payment may trigger a series of events that could have serious negative implications for the Greek economy. First, the European Central Bank's decision on whether to continue funding the Greek banking sector would be key. The latest figures show Greek banks borrowing €107.2 billion from the ECB in March.

Moreover, a clause in the Master Financial Assistance Agreement means that loans provided to Greece through the European Financial Stability Facility (EFSF) could also be declared in default following a default on the IMF. This would mean that Greek banks would be unable to use EFSF bonds as collateral for the ECB's liquidity operations.

A missed payment on the IMF loan, or a default, would also be likely to have a marked negative impact on economic activity. Confidence would most probably be badly hit, while banks' deposit outflows would be likely to accelerate and credit conditions would also be significantly tighter. This might oblige Greece to put in place capital controls and restrictions on current-account withdrawals similar to those implemented by Argentina at the end of 2001.

This would also be likely to increase government instability and protest and riots risks in Greece. Any delays or changes to pension and public-sector wage payments (although we estimate that these will be given priority over loan repayments) would risk triggering wide-scale nationwide strikes and demonstrations that would have the potential to turn violent.