Even if Athens does not meet its financial obligations at the end of the month it does not necessarily mean an official default, as the lenders have a number of options when the 30 day notice to repay the outstanding amounts expires.
The barrage of media reports would have us believe that if Greece fails to pay its debt instalment to the IMF, the country will return to the neo drachma on the first of July.
This is not entirely true, even though some the return to a national currency as a positive solution to the Greek crisis: it would allow Greece to devalue its new currency, supposedly making the country competitive and resulting in economic growth and the ability to repay its debt.
Many others fear that the new drachma would be the road to ruin, an obstacle to trade, increasing the cost of imports and making it impossible for Greece to ever repay anything.
But Greece may not have to leave the eurozone, even after a default. The legal basis for “forcing” a country out is certainly shaky. Since both the treaty on the European Union (Maastricht, 1992) and the treaty on the functioning of the European Union (Rome, 1958) are designed to strengthen integration, becoming a member of the EU and eurozone is meticulously regulated, while only article 50 of the EU treaty regulates how a state can leave the union. And a mechanism for leaving only the eurozone or for expulsion even has not been provided for at all.
Using the euro without being a member of the eurozone or even the EU is hardly unprecedented: Montenegro, Kosovo, the Vatican City, Andorra, San Marino and Monaco all do so at the moment. Nor are these exceptions euro-specific oddities. The US dollar is currently legal tender in Ecuador, El Salvador, East Timor, several micro-states and Zimbabwe, while in Panama only dollar bills are in use.
If this is common practice, Greece cannot be put into a worse position than states using the euro without being a member of the EU and who did not have to meet the convergence criteria. Instead, Athens’s voting rights on euro-related issues could be suspended, as well as the right to mint coins and print banknotes until Greece meets the convergence criteria again.
Keeping Greece in the eurozone despite a default would preserve its access to the eurozone market, avoid the vast expense of reintroducing of the drachma, and pave the way for negotiations on credit payments in the future – while still remaining in line with the EU treaties. This procedure would also defend the integrity of the euro: an important goal if the currency is to be perceived as a stable alternative to the US dollar.
Regarding bankruptcy, there are several hints that a default might not be quite as catastrophic for Greece’s economy as many assume. A 2014 study on state bankruptcies shows significant growth rates after a default and that access to new credits recovered surprisingly quickly: in the 1990s credits were handed out almost immediately after bankruptcy. The reason is that another bankruptcy immediately after a default is less likely, making a new credit an attractive investment. Additionally, Greece may also have access to EU support.
And keeping Greece in the eurozone, preferably before, but even after a default is in line with the EU treaty the Junker administration is keen to protect:
“The EU’s aim is to promote peace and the wellbeing of its peoples. Based on the rule of law, the EU should achieve economic growth, price stability, full employment, social progress and solidarity among its member states.”