The country’s inability to pay its debt or reach a deal makes it the largest nation in history to be in arrears to the IMF.
Greece’s missed payment to the IMF is a milestone—it’s both the first time a developed country has missed such a payment, and the first time a Eurozone country has defaulted on its debt.
But that doesn’t mean automatic expulsion from the Eurozone. Yanis Varoufakis, the country’s finance minister, made the case on his blog three years ago that “a defaulted Greece can easily remain in the Eurozone,” and that in fact “Europe’s optimal strategy is to let Greece default.”The Lisbon Treaty, which forms the legal basis of the European Union, actually makes no provision for a member’s expulsion. A 2009 legal analysis by the ECB found that, “while perhaps feasible through indirect means, a Member State’s expulsion from the EU or EMU [the European Monetary Union], would be legally next to impossible.”
In practice, though, Greece still has to pay its bills with some kind of money—and it’s running out of euros. At the stroke of midnight, there were still euros in Greek banks, but how long Greece can remain on the currency depends, in part, on how long they can keep euros in their coffers—to wit, whether Greece can scrape together new infusions of euros before it runs out entirely. As CNBC explained:
If the Eurosystem—the European Central Bank and the central banks of euro zone members—refuses to finance Greece by halting the release of more emergency loans… there could be a rapid withdrawal of deposits from Greek banks. Athens would then need to refinance the banking system by creating a new currency to do so.
But there’s also the “no exit” option, where the country just keeps the euro. Polls have indicated that this is what Greeks want to do, and it’s what Prime Minister Alex Tsipras promised to do. If, say, he manages to secure a post-default bailout deal in negotiations set for tomorrow—allowing it to pay its debts to the IMF a few hours, or a few days late—Greece stays in the Eurozone that much longer. But the course of negotiations so far doesn’t give much reason for hope.