What if the Greek talks fail?

Alexis Tsipras, Greece's prime minister, waves as he departs a EU summit meeting in Brussels, Belgium Image copyright Getty Images
Image caption Greek prime minister Alexis Tsipras leaves the latest EU summit meeting in Brussels

So it's back to the negotiating table in Brussels once again.

On Saturday finance ministers will try to agree the policies the Greek government will follow as a condition for releasing withheld bailout funds.

What if they fail? What if Greece doesn't get the money?

The deadline that has been focussing minds is the last day of June.

That's significant for two reasons.

It is the date when the extended bailout agreement expires. If it does simply lapse, Greece is without any international financial backing.

It would have to rely on tax receipts, which have been hit by a renewed recession, and borrowing in the markets - which it can't do.

The end of the month is also when Greece is due to make a payment of €1.5 billion (£1.1 billion) to the IMF, a repayment of part of the first bailout loan. The negotiations are about releasing the final instalment of the second bailout.

Greek officials have said they won't be able to make that payment to the IMF unless they receive the bailout money.

Solvency issues

If they do miss the payment, it would be the first time that Greece has failed to pay out to its official lenders - though there is a long standing problem with late payments to suppliers to the Greek public sector.

Failing to pay the IMF could set off a chain of events leading ultimately to Greece leaving the eurozone and even the EU. But it does not necessarily mean that.

The European Central Bank's (ECB) governing council has to judge whether the Greek banks are solvent. If it thinks they are not, it could decide to stop the emergency loans that are keeping the banks afloat and that could lead the government to decide it has to start printing its own currency.

Image copyright Getty Images
Image caption Failing to pay the IMF could set off events leading to Greece leaving the eurozone

The banks' solvency is linked to the financial state of the Greek government and if there is ultimately no bailout, the banks are arguably bust.

But it is the ECB's judgement when to pull the plug.

So if there is no deal in Brussels but signs that talks could continue, the ECB could still allow the banks to be propped up - and the word is "allow" - because the emergency loans are coming from the Greek national central bank, which needs the ECB governing council's consent.

The uncertainty about the banks - how long they will be able to meet demand from customers and about whether the government will convert accounts into a national currency - means that at some stage financial controls are a real possibility.

It happened in the Cyprus crisis in 2013. The most likely type of restrictions would be limits on how much cash customers can take out, and on how much people can take out of the country - as cash and by transferring money electronically to foreign banks.

Some have suggested that restrictions might be needed as soon as Monday if there is no deal at the finance ministers' meeting.

Default event?

If the IMF payment is missed, managing director Christine Lagarde will have to decide how to respond. The normal IMF procedure with "overdue obligations" as they are called at the IMF is to allow a month before she formally tells the Board.

But an IMF official said that in this case, she would take that action "promptly".

Does it matter? It certainly keeps up the pressure on Greece and it would count formally as a "default event" under the eurozone's lending agreements with Greece. That would give them the right to demand immediate repayment of all that has been lent, but in practice it is almost inconceivable that they would do so.

If Greece does fail to pay the IMF, it is possible that the negotiations will continue with Greek banks kept alive either by controls or with loans allowed by an increasingly unhappy ECB.

There's a payment due to the IMF on 13 July, a relatively small €350m. But the big one in the near future is on 20 July - €3.5bn to the ECB when bonds that it bought in the financial markets are due for repayment.

Missing that really would feel like a big deal as it is the ECB's judgement about the viability of the Greek banks that is so central to how this very long drama plays out.