"The Greek Endgame Is Here": Probability Of IMF Default Now 70%, Says Deutsche Bank

Tyler Durden's picture

As the farcical negotiations between Greece and its creditors unfold ahead of a June 5 IMF payment and as Alexis Tsipras is forced to spread false hope just to avoid a terminal bank run, a picture of the Greek endgame has emerged. 

We’ve discussed the political implications of both an agreement or a Grexit and we’ve also taken an in-depth look at what a missed IMF payment means for the country’s EU creditors. On the political front, the troika is intent on sending a strong message to leftist political parties (such as Spain’s Podemos and Portugal’s “ascendant" socialists) that using the threat of a euro exit as a way to extract austerity concessions is not a viable negotiating strategy. What this amounts to is an attempt on the part of the “institutions” to subjugate the political process to economics. In terms of skipping a payment to the IMF — who, as a reminder, effectively paid itself earlier this month by allowing Greece to tap its SDR reserves to pay the bills — there are a number of cross acceleration concerns which you can review by referring to the following graphic:

Now, amid accelerating deposit outflows and an hourly flow of conflicting headlines, Deutsche Bank is out with a fresh take on the Greek endgame including an analysis of both the political wrangling that would need to take place in order for parliamentary approval of concessions to creditors and the mechanics of a default to the IMF. 

Via Deutsche Bank:

Little has changed in terms of developments on the ground. Despite a number of reports that negotiations may be split into separate chapters and disbursements with more difficult issues left for September, this remains unlikely. The consistent European position has been that a full staff-level agreement between the institutions - inclusive of the IMF - and Greece is required to unlock funding. Talks in this direction has been progressing in stop-start fashion over the last few weeks, with the Brussels Group (former Troika) reconvening again yesterday to continue negotiations. But progress remains slow, with multiple European and IMF officials over the last twenty four hours stating that more needs to be done to reach agreement…


The Greek government's liquidity position will ultimately drive the timelines over the next few weeks. Close to 1.5bn EUR is due to the IMF in four instalments over the course of June, with Greek government officials repeatedly stating that there are insufficient cash buffers to satisfy these payments. Given that the last IMF payment was made by drawing down Greece's SDR reserves at the fund, an exhaustion of cash buffers is a fair assumption. The most likely catalyst in coming weeks is therefore likely to be the Greek government's ability or not to pay the IMF...


A number of press reports have suggested that there is a one-month grace period relating to a failure to pay the IMF. This likely confuses two issues: a non-payment and the implications this has on cross-default provisions on other loan instruments. IMF loans do not include any formally defined grace period, with fund staff required to send an urgent cable demanding payment to the Greek authorities immediately. This is then followed by a formal notification by the IMF Managing Director to the Executive Board of the failure to pay. It is this notification that is defined as an event of default in Greece's EFSF and other official-sector loans, triggering cross-default. If this materializes, European creditors then have the right (but not the obligation), to accelerate EFSF loans, causing them to be immediately payable. In turn such an acceleration event would trigger cross-default and potential acceleration in the post-PSI Greek government bonds. The timing of the IMF notification letter is itself a political decision, however, as is the decision to accelerate EFSF loans. IMF guidelines suggest the notification to the board happens in a month. Our understanding is that the notification period may be flexible, with some reports last week suggesting that the Executive Board has requested that this notification happens sooner in the event of a failure to pay from Greece.

Either way, it is important to note that it is not the response of the IMF that will matter in the event of a non-payment. It is the role of the ECB that is crucial. The funding of the Greek banking system remains highly dependent on the central bank's Emergency Liquidity Assistance, with a suspension or cap to this financing equivalent to an inability to make deposit withdrawals (or foreign transfers) from Greek banks and de facto capital controls. 

The above underscores two important points that we’ve made on any number of occasions. First, whether, when, and to whom Greece defaults is ultimately a political decision that rests in the hands of the IMF and EU creditors. Once again, it’s all about using financial leverage to influence the future course of the currency bloc’s political landscape.

Second, the ECB ultimately controls the fate of the Greek banking sector and therefore Greek depositors because without ELA, banks simply can’t keep up with withdrawals, lending the lie to Tsipras’ Wednesday contention that there is “absolutely no danger” to depositors.

Next, Deutsche takes a look at possible outcomes to the Greek tragicomedy: 

No agreement reached, followed by non-payment to the IMF (40% probability). This scenario would likely provoke the most negative reaction from the ECB. Even if cross-default provisions on Greek loans are not triggered immediately, the ECB would likely severely restrict Greek bank access to ELA financing. Rather than declaring the banks insolvent (similar to Cyprus), the most likely avenue for this would be to refuse to raise the regularly reviewed ELA financing ceiling, or more likely, to raise the haircuts required on Greek bank collateral. Our current calculations suggest that Greek banks have around 30-40bn of liquidity available to draw under existing collateral arrangements. An ECB decision to raise haircuts aggressively could leave an implicit "hard" ELA cap that is much smaller, effectively requiring the authorities to reach agreement within a matter of days depending on the pace of deposit outflows and collateral exhaustion.

Agreement reached, but no time/unable to pass through the Greek parliament before IMF payment (30% probability). European creditors will require passage of prior actions through parliament before any disbursements are made. An agreement by the government at the last minute is possible, but there may be no time to secure financing before the domestic political process plays out. The current ruling majority and/or the opposition may refuse to support an agreement requiring a change in government coalition. In this event, it is possible the ECB provides interim financing to pay back the IMF via raising the amount of treasury bills that the Greek government is allowed to issue. However, we would consider it more likely that Greece is allowed to fall into arrears at the IMF and the ECB makes a less binding increase in haircuts on ELA collateral. The latter would maintain the pressure on the Greek side to ratify an agreement, but at the same time would allow ongoing liquidity provision to the banks so long as the approval process is moving in the right direction.

Agreement reached, followed by timely passage through the Greek parliament (30% probability). This would be the most positive scenario, with the government able to quickly draw upon support from its own majority or the opposition to pass the agreement. Assuming the upcoming Friday June 5th IMF payment cannot be made, this would require a staff- level agreement 2-3 days before. In this event we would expect the ECB to tolerate an increase in t-bill financing to make whole on the IMF payment if disbursements haven't been made in time due to other national approval processes. 

In sum, there is a 40% chance that Greece simply doesn't pay the IMF next month triggering, at the very least, restrictions on ELA access and, in short order, capital controls as withdrawals could accelerate and (literally) break the bank within "a matter of days."

Alternatively, there's a 30% chance that a deal is reached but proves so politically contentious that its provisions can't be approved in time, making a payment to the IMF logistically impossible and putting the ECB in the rather unpalatable position of having to decide how lenient it wants to be based on the central bank's perception of ratification progress which, incidentally, is essentially the same position Mario Draghi has been in for quite sometime only next month, creditors stop getting paid. 

And just in case there were any lingering doubts about where talks are headed or about whether the IMF will be willing to compromise on either pension reform or its demands for the EU to writedown Greek debt in order to make the country's debt-to-GDP ratio more 'sustainable', we'll close with the following three headlines that hit the wires this morning:


*  *  *

Upcoming event and payments

Thursday May 28th - Eurogroup Working Group to discuss Greece

Wednesday June 3rd - Weekly ECB review of ELA (and every Wednesday thereafter)

Monday June 1st - Bank holiday in Greece

Wednesday June 3rd - ECB monetary policy meeting Friday June 5th - 306mio EUR IMF payment

Friday June 12th - 344mio EUR IMF payment

Tuesday June 16th - 574mio EUR IMF payment Wednesday June 17th - ECB non-monetary policy meeting

Thursday June 18th - Regular Eurogroup meeting

Monday July 13th - 459mio EUR IMF payment

Monday July 20th - 3.5bn EUR maturity due to the ECB Tuesday July 14th - 87mio EUR interest payment

Thursday August 20th - 3.2bn EUR maturity due to the ECB

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e_u_r_o's picture

I can confidently predict that nothing will change and the show will go on.

Bokkenrijder's picture

DB pulls a number out of their ass (*), and ZH copies it with the usual "Greek Endgame Is Here" scaremongering.

Exactly, e_u_r_o the Euro is a political project, and they (Juncker, Schulz, Draghi and Co) will continue down the road of total destruction. A partial destruction with a Grexit is not good enough, the central planners will only rest when Eurobonds have been stuffed down our throats and all the German savings have been transfered to Southern Europe. 

(*) how the fuck do you calculate the probability of a country defaulting anyway, when you have so many totally unpredicatable variables?!

Headbanger's picture


That's fucking hilarious.

Wolferl's picture

Throw those pathetic Greeks out of Europe already.

THX 1178's picture

the probability of greece defaulting is 100% we just dont know when.

greenskeeper carl's picture

Exactly. 100%. I would just add that means bailouts or bail ins at every big insolvent bank holding Greek debt.

forexskin's picture

Greece, we'd like you to meet Iceland.

COSMOS's picture


Time for Greeks to put those sunny balconies to good use.

Maybe they can graze some cows to diminish their upcoming food anxiety



dontgoforit's picture

With the yield percentages they put on those bonds a couple years ago, they have sucked dry everything the little fella has to give.  Nothing more there.  They will leave the small nation destitute until the whole thing rolls over which, IMHO, could take a generation or more.

Farqued Up's picture

I'm afraid the Fed will be the exalted, unaudited, independent, deep pockets bail out specialists, courtesy of US taxpayers that will save the day for the One Worlders' experiment. I can smell that cooking 6,000 miles away.

I can see the weasels, Mickey McMouse and Crying Boner, lining up for some suction with the Snowdyke and all is well. Greece's bureaucrats enjoy their subsidized livfestyles in blissful socialistic harmony while the deep stuff gets deeper. Moar debt to cure the debt problem, it's the Keynesian way.

Bumpo's picture

Perhaps the EU creditors should start worrying about themselves. Soon, the ball is in your court, ECB, IMF, Deutschebank, SocGen, etc, ect, etc .. Have fun with your own credit problems.

Ghordius's picture

"the Euro is a political project"

ah, the old myth. swallowed whole, sinker and all, by endless commentators and even for a time by fervent EU federalists

I see even wikipedia has changed the old article about the 1979 European_Exchange_Rate_Mechanism, explaining with the "hindsight of posterity" that it was always meant to become the EUR, eventually

I'm sorry, but it is not so. we had a monetary problem. small and volatile currencies in the face of the newborn (1971) fiat King Dollar, among many other aspects

even Britons, at that time, felt that "something had to be done". but then Soros... "helped" the British Pound to fall off the Exchange Rate Mechanism

Oldwood's picture

So it really is all about the "good of the people" then.

I thought it was but another attempt to concentrate power within the hands of a very few, by passing all illusions of democratic choice.

Cynical me.

Ghordius's picture

Oldwood, you always nibble at the edges, eh? What is exactly the difference between 19 National Bank Governors in 19 National Banks and the same bunch in one ECB meeting room?

Is the Banque of France a "paragon of democracy"? Or the BundesBank, where the German Bundestag just recently reaffirmed the independence of it? BankItalia?

There is exactly one national bank in Europe that does only what the government says - the cabinet, mind you, not Parliament - and that is the Bank of England

so either you are asking to stop giving national bankers independence or you are just... nibbling at the edges of the thing. so what is it? or is it just that the ECB reminds you of the FED?

because if it's the last thing, then no. megabankers say what the FED has to do, besides two monetary goals given by law (and conflicting goals, to boot)

here, we give the ECB one goal only: price stability. a very, very difficult concept, I fear. like "political capital", it looks untranslatable in English

forexskin's picture

BoE does what the cabinet says? Huh, i thought the megabankers in the city of london had the whip hand.

and quit with the whining and deflecting blame to 1971 - bretton woods was a stop on the way. the US has been fending off european banking intests since that bastard cuckhold Hamilton was doing their bidding at its inception. The US republic scared the hell out of the euro elite then, and they are still with their long term project to destroy the notion of the free individual - the essence of the American Project.

“If this mischievous financial policy, which has its’ origins in North America, shall be endured down to a fixture, then that government will furnish its own money without cost. It will pay off its debt and be without debt. It will have all the money necessary to carry on its commerce. It will become prosperous without precedence in the history of the world. The brains and the wealth of all countries will go to North America. That country must be destroyed or it will destroy every monarchy on the globe.” – Editorial in the Times of London, 1862

put the blame where it belongs - the elite aristocracy of euro banksters who can go to hell where THEY belong.

"We are grateful to The Washington Post, The New York Times, Time Magazine and other great publications whose directors have attended our meetings and respected their promises of discretion for almost forty years. It would have been impossible for us to develop our plan for the world if we had been subject to the bright lights of publicity during those years. But, the work is now much more sophisticated and prepared to march towards a world government. The supranational sovereignty of an intellectual elite and world bankers is surely preferable to the national auto-determination practiced in past centuries." David Rockefeller, founder of the Trilateral Commission, in an address to a meeting of The Trilateral Commission, in June, 1991

You really think Rockefeller made that sh*t up on his own? I'm sorry, but you really come across as a eurocentric victim idiot, my friend.


Ghordius's picture

I actually have to thank you for this reply

it's an excellent example of euro-centrism versus US-centrism

"the US has been fending off european banking intests since that bastard cuckhold Hamilton was doing their bidding at its inception. The US republic scared the hell out of the euro elite then, and they are still with their long term project to destroy the notion of the free individual - the essence of the American Project. "

I would not put that in those terms, but you are basically correct. in principles, if not in details

as a reminder, that "euro elite" was the Kingdom of England. then you can't deny that France helped the young US Republic, mostly to annoy the English during wars, of course

as a further reminder, Rockefeller is an exponent of the American elite. and that is the point: what mostly English banks were then, mostly American banks are now

the big change was during both world wars. American credit was given to the UK and France in order to win them against Germany

have a look at the City of London. just read the daily recap on ZH. who writes them? an American, in London, for a theoretically German megabank, nevertheless in a country, the UK, that does not use the EUR and will possibly leave the EU

Farqued Up's picture

Ah, the more I read of Hamilton the more that Aaron Burr becomes my favorite American, except for Jefferson, of course.

El Vaquero's picture

You cannot seperate economics and politics.  The two can be out of touch with each other and reality, but they are inseperable.  I'm sorry, but the EU is about politics, and by relation monetary issues.  Politics boils down to who gets what.  Economics is about who gets what.

Winston Churchill's picture

Easy,its 100%.

The when is a little more problematic.

Works for any country as well.

Kirk2NCC1701's picture

"(*) how the fuck do you calculate the probability of a country defaulting anyway, when you have so many totally unpredicatable variables?!"

A: PARAMETRICALLY. ID the Top 10 Variables and attach a Probability to each. Multiply the 10 Probabilities, to get 'Overall Probability'. The other Variables are 'small fry' and can be managed/contained via SOP.

QED. Don't they teach you this at Starfleet anymore? ;-)

Bangin7GramRocks's picture

If, if, if it ever happens they will not call it a default. The Fed will make the banks whole and the U.S. will shower them with "aid". Unless you live in Greece, you won't even notice. When you can invent money, problems like these are easily fixed.

Party On Garth!

Urban Redneck's picture

Sounds like one of the horses had a false start out the gate.  The "Plan B" starting gun is only to be used for Friday afternoon races after post time (market close). 

Ghordius's picture

UR, there is no such thing as a "Plan B". Mario Draghi himself addressed ZH with the words:

"There is no such thing as Plan B" (correct) and

"Those are people that do not understand the amount of political capital that has been invested in the EUR"

(also correct, then many ZHer do not even know what to understand under "political capital")

of course, continentals don't even go to the toilet without a plan. You know it from Switzerland

they do have an understanding for the phrase "political capital" but not for "not having a plan", independently from how whacky it is

and the ECB's "official secret plan" for a possible GreXit is called... Plan Z

Urban Redneck's picture

Whether it is Plan B or Plan Z, and a GreXit or Capital Controls... The Wednesday Afternoon -Thursday Morning timing reeks of someone being caught flat footed.  Of course, I am assuming that Berlin understands that the purpose of brinkmanship is not to actually cross the line. 

Ghordius's picture

+1, but consider this: Berlin claims to have no idea how the Greek finances are going. Athens claims it's not telling anybody

I'd say if half of it it's true then it's Athens that knows where the line is

Urban Redneck's picture

Germany can watch a bank run in real time from a terminal in Mario's office (or anywhere else with real time SWIFT and TARGET2 access)...

In fact, given the greater depth of IT services in Germany, they might know before Athens does.  

People weren't withdrawing EUR 300M from Greek ATMs on Tuesday (and I'm assuming an escalating amount yesterday and this morning).

Of course it possible that the vast bureaucracy assigned the task of monitoring to some inbred or incompetent relative of someone important... and that no one in the German government was actually watching or coordinating with the ECB before speaking...  

FreeMoney's picture

Believing Mario Dragi is the plan maker and not the muppet is a mistake.  Believing what he says is another mistake. 

Urban Redneck's picture

apparently that conversation went over your head

stilletto's picture

They may have a plan and they may be obstinate in sticking to it, but it doesnt mean it will work or survive contact with reality. It is the arrogance of elites that they believe they can turn back the tide and control the people. Swis plan to lock their exchange rate with the euro was a classic of European arrogance that collapsed. So the ECB has no plan B until reality forces them out of their ivory tower.

unplugged's picture

and I will bet anyone the "usual amount" that you are right

doctor10's picture

Looking forward to a fall  trip to Santorini on the Draschma exchange rate!!!

Eff Brussels!!!


it'll be at least 75% less than the Euro.

tarabel's picture



I wouldn't walk around alone at night. You might find a different kind of exchange rate transaction taking place.

nemesis2012's picture

                     Be careful in rejoicing from other people's misery. Life can be a bitch during payback......................

YouSerious's picture

Greece is in more trouble than FIFA and Putin combined.

Wile-E-Coyote's picture

Haa ha FIFA has been bent for decades, they are only taken down after they award Russia the World Cup.

MOB666's picture

And a palestine vote agains the Joooooz

Troy Ounce's picture



I am so happy that they have everything under control!

Kirk2NCC1701's picture

Troy Pounce, I'd be happier if Veryfukis had the good sense to fly to Iceland, and spend the w/e with their FinMin and PM.

He'd better brink a few cases of Ouzo with him (to drink and gift), as booze is expensive there. Maybe a bunch of Greek food to.


Quinvarius's picture

If they default now, people will start to ask why they emptied the coffers to make the last payment.  Should be interesting. 

insanelysane's picture

The rest of the PIIGS certainly will.

Bumpo's picture

I think Greece wants to be as blameless as possible when they finally default. Once every last penny is gone, they can pull out the printing press and make as many Drachma as they want. Greece is making a point. It's impossible for them to pay their debt. Once that's proven for all the World to see, the EU will look like the debt slave masters they are - who will bail out any bank any time for any reason - while making the poorest of the poor the bag holders.

Oldwood's picture

Who in this world will accept a drachma as payment? I would be more inclined to invest with Madoff or Corzine than accept Greek bankrupt currency, much less buy their debt. Of course nothing is out of bounds for salesmen. There are those who would sell you a fake Rolex without blinking and when confronted with the fraud, proceed to explain what an incredible opportunity he has provided the victim as now they too can resell it at a profit to an even greater fool.

Greece is the poster child of the "greater fool" theorem. Infinity may not be measurable but it sure is apparent, because we seem to have infinite greater fools.

Winston Churchill's picture

You accept USD don't you ?

The US fundamentals are worse than Greeces at this point.

Only difference is a printing press and the MIC.

El Vaquero's picture

At least I could have counted on an invasion force enforcing the value of the dollar a decade ago.  I didn't understand that back then, but it was what it was.  Today, I'm not so sure.  An invasion force might kill the dollar now.  I accerpt dollars today because that's what everybody around me accepts, and they won't wake up until the dollar is imploding.  It is what it is.

Winston Churchill's picture

Watching the penny drop with a client of mine was funny.

We were talking casually about something when I said the only difference between the Zim $

and the USD was 12 carrier groups.Took a couple of minutes to sink in, then eureka.

He's a stacker now.

813kml's picture

The "S"'s in carrier names should be replaced with "$"'s for the sake of brevity.

FreeMoney's picture

The same people that accept a Venezuelan Bolivar will accept a Greek Drachma.  You can expect an official exchange rate and a black market exchange rate that has a hyperinflation type rate to it.  Of course followed by import shortages, bare shelves, leftist government takeover of small and large business, lots of "evil capitalists" going to jail for selling toilet paper and tampons over the offical controlled price, and GDP implosion as the confiscations of private property accellerate.

This story has been written before and will be followed by every place that embraces leftist doctrine.   

Oldwood's picture

The dollar we already have, and all that comes with it. Anybody that would care to look at Greece's default history would be nuts to loan them anything...unless you are going to sell the note anyway....like they already did with the help of Goldman. Its this constant gaming of debt, of selling the fake Rolex to the greater fool that is burning this mess down.

If people would just go out and produce something rather than trying to profit from others labor, maybe...just maybe some of this fraudulent shit would end...maybe.

Farqued Up's picture

The bigger fool syndrome is built into our DNA. I recall the day many moons ago that I learned that there is no Santa, and shortly thereafter, I learned that the famous Holland Tulip mania fable wasn't actually fable but fact. Hello, wake-up call. Ponzi is KING!!! The bigger fool is the foundation.