Paris, June 30 – On y est. Greece had until Tuesday, June 30 to pay off part of its debt to its creditors, amounting to EUR 1.5 billion. The default seems inevitable while negotiations for a new aid plan, which last for several weeks, have failed.

A few days before a referendum  on the proposed plan by creditors to be held on July 5, Greece took steps to protect its finances and its economy by deciding to close its banks to limit withdrawals at branches and control capital.

But what really constitutes a default? Francetv info helps you identify what might wait Greece.

Failure to pay, what is it?

This is when a country (or, more commonly, a company) is not able to repay its debt at a payment deadline. “This is the result of either a liquidity problem or solvency” , says Christian Chavagneux business journalist and associate researcher at the Centre for Global Political Economy from the University of Sussex, England.

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In the first case, it means that the country does not have, at maturity, the money needed but that it will be available at a later date. When a country becomes insolvent, however, this means that the functioning of the economy does not allow him to generate enough revenue to repay debt.

“In the case of Greece, this is the question of solvency that is asked , summarizes the researcher. The IMF provides to the Greeks that they just have a liquidity problem and asks them to further strengthen the austerity policy and therefore to tighten their belts even two or three years, to repay. On the other side, the government of Alexis Tsipras said that these austerity policies have so killed the country’s economy as this one today is no longer able to pay. “

Comment en arrive-t-on là ?

Every situation is different, but the defaults are more common than we imagine. In the 1980s, a serious crisis affecting Latin American countries, leading them one by one until the default. The phenomenon began in 1982 with Mexico. After the two oil crises that marked the previous decade, the oil exporting countries decide to grow the money earned in banks. They begin to distribute the money to all-will, lending at variable rates to developing countries. Within a decade, from 1970 to 1980, Latin America debt increased from 40 to 240 billion dollars, reports Le Monde.

With rising interest rates and crates are emptied, Mexico finally suspend repayments in the summer of 1982. The banks then decided to stop lending in the region. “The creditors panicked , says Christian chavagneux. They feared a serious international crisis. The IMF has agreed to lend to countries in Latin America so that they repay the banks. “ In turn, it forces the country to implement austerity policies.

“Banks should not have to pay as much” , assures the expert. This situation is similar to that of Greece before the crisis. “Investors have said that as Greece entered the euro area, they could lend as much as Germany. But they did not take all the same risk. “

Comment on s’en sort ?

For seven years, Mexico suffers: drastic cuts in social expenses (wages fall by 40% between 1981 and 1989), nationalization of banks deficit, privatization of the public sector … Growth is stagnant, it is called “lost decade” . In 1989, “the economy was completely sealed, like that of Greece today and the debt had not diminished” says Christian Chavagneux.

The Brady Plan is implemented. It clears a part of the Mexican debt and extends the life of the loans. Today, the country’s economic situation has stabilized, but “the country warn of stigma with considerable inequality”, notes Le Monde .

Sacrifices has refused to Argentina. After its economic crisis in 2001, it decided not to pay  all of its debt. Thus, 93% of its creditors were forced to accept the loss of 70% of the loaned amount. “

By canceling part of its debt, the country becomes insolvent , explains the researcher. Knowing that the best is to have an agreement negotiated debt relief with creditors. “ If it does not, the country has a greater risk of not being able to borrow on international markets.

This situation endures even today in Argentina, which now no one wants to lend.

A spell that could also know Greece if from the euro area, according to Christian Chavagneux. In this case, the new currency, be it a currency as paper state debts or new drachma would then collapse of 50-70%, as noted by Le Point. 

Result :  the debt, in euro, would become impossible to pay. “The solution would be wise, at first, to cancel part of the debt, and, secondly, to implement a policy to help Greece pay , said the specialist. The opposite of what is happening. “