Greece debt crisis: Here’s what you need to know

Negotiations between Greece and its European creditors remain ruptured, and officials in Athens confirmed Monday that they would not be able to repay almost $1.8 billion to the International Monetary Fund by a Tuesday night deadline.

How firm is that deadline, anyway? And would a vote by Greeks, scheduled for Sunday, rejecting the terms of the country’s eurozone creditors preclude renewed talks?

Here are some of the main questions experts are trying to answer.

Q: What are the implications of Greece’s failure to make its payment to the IMF?

A: Greece will almost certainly miss its payment, but that won’t necessarily put Greece in default. The IMF could simply declare Greece to be in arrears.

Missing the payment, though, could make it even more difficult for the European Central Bank to continue extending emergency loans to Greek banks. The central bank announced Sunday that it would not increase emergency funding to Greek banks, which are tightly linked to the government. The central bank can only lend to solvent banks, and it is hard to consider Greek banks solvent when the government is not paying its bills.

Q: How might Greece’s eurozone creditors – the other 18 countries in the currency union – respond to the country’s failure to repay the IMF?

A: They could waive their rights to demand repayment from Greece, which seems unlikely. They could demand that Greece speed up its repayments, something the country doesn’t have the money to do. Or, most likely, they could tell Greece that they will seek to collect the money sometime in the future.

Q: What will Greeks vote on in the referendum called for Sunday?

A: Prime Minister Alexis Tsipras of Greece surprised the rest of Europe over the weekend by calling for a referendum on whether to accept terms from the eurozone creditors – terms he says are unacceptable. The eurozone negotiators say that there was no final offer on the table and that Tsipras broke off talks too soon. They say they are not sure what it is the Greek public will be asked to vote on. The Greek government has said that the public will be asked to accept or reject the creditors’ proposal of June 25.

Jean-Claude Juncker, the president of the European Commission, who has acted as a broker in the negotiations, on Monday called for Greek voters to accept the deal with creditors. That suggested Juncker would lay the groundwork for a resumption of talks on aid to Greece.

Q: What kind of shape are the Greek banks in? Will they really be able to reopen next week?

A: Greek banks are solvent on paper, but lending is practically at a standstill, and they are not able to play the role they should in financing the economy. On Sunday, the ECB capped its emergency credit line for Greek banks at 89 billion euros (almost $100 billion). Most if not all of that money has already been used to cover withdrawals by customers, and there is virtually no money available for new loans.

Banks may open their doors next week, but it is unlikely that they will operate normally for some time. Greece has not yet put in place European rules for the orderly shutdown of failed banks.

Q: Why do things seem less ominous than the last big crisis over Greece threatened the global financial system?

A: Since 2010, most international banks and foreign investors have sold their Greek bonds and other holdings, so they are no longer vulnerable to what happens in Greece. Other countries in the eurozone, like Portugal, Ireland and Spain, have taken steps to overhaul their economies and are less vulnerable to market contagion. What’s more, the European Central Bank has erected powerful firewalls by buying huge amounts of eurozone government bonds and promising to purchase more if needed, making governments less subject to market whims.

Still, Greece may be linked to the world financial system in ways that may not be evident until it defaults on its debts or its banks collapse.

Q: How likely is it that Greece will abandon the euro, or even leave the European Union?

A: Exiting the currency union and the EU would involve a legal minefield that no country has yet ventured to cross.

The Treaty of Lisbon, which went into effect in 2009, included a clause for a member state’s withdrawal from the EU. But there are no provisions for departure from the currency union.

Greece’s finance minister, Yanis Varoufakis, appeared last weekend to be relying on the absence of rules to prevent, or at least delay, Greece’s exit from the euro. And while investors are clearly concerned about Greece, they seem to have been soothed by assertions that European authorities are committed to preserving the eurozone by using new tools for stabilizing banking systems. They may also be betting that Greece will reach a deal with creditors before or after the referendum. Polls indicate the majority of Greeks favor sticking with the euro.

This story was originally published June 30, 2015 at 7:06 AM with the headline "Greece debt crisis: Here’s what you need to know."