Nightmare of disorderly default focuses minds on Greece

Fri Jan 27, 2012 6:45am EST
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By Ingrid Melander

ATHENS (Reuters) - Argentina's chaotic bankruptcy a decade ago triggered riots, looting and dozens of deaths. The prospect of that horror scenario playing out in Greece is focusing minds across Europe as the threat of default remains all too real.

At best, if private creditors walk away from a voluntary debt restructuring, a disorderly default would shut Greek banks for days to give Athens time to prevent a bank run by reassuring depositors that the lenders will not go bust.

At worst, if EU partners also pull the plug, Greece risks a chaotic descent into an extended bank freeze, possible shortages of basic goods, violence and what central bank governor George Provopoulos called the "hell" of a euro exit.

"If banks were hit, I could not import goods any more. I would have nothing to sell. How would I survive?" 66-year old shop manager Antonis Broukias asked in his old-fashioned books and stationery store in central Athens.

"I will surely shut down my shop, especially if we return to the drachma," Broukias said, adding that he was worried protests could turn violent.

Athens and its private creditors are scrambling to avoid a messy default that could drag the whole euro zone into a much deeper crisis. But talks have stalled and the clock is ticking down to a major bond redemption due in late March.

Even if a deal is struck, Greece's EU and IMF lenders have made clear they will not sanction a 130 billion euros bailout package unless Athens pushes through more budget cuts and implements a series of long-agreed austerity reforms. If unimpressed, they could pull the plug on aid at any time.

The fate of Greek people and businesses if there is no deal with private creditors, who are being asked to take hefty losses as part of the new bailout, largely depends on whether the EU, European Central Bank and IMF - tired with Athens' failure to meet reform targets - would stand by Greece.   Continued...

<p>People walk in front of a closed shop with graffiti on it in central Athens January 24, 2012. REUTERS/John Kolesidis</p>