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Monday, February 02, 2015

Greece Goes Cold Turkey

Yanis Varoufakis, the Greek finance minister, will meet Chancellor George Osborne in London today.

Doubtless the subject of Greece's debt will come up in conversation.

Varoufakis claims that Greece will honour its debts, but repayment of these debts is subject to Greece's economy growing. 

So far so plausible.

However, he also went on to say that Greece will not take on new debt and will go "cold turkey" wrt its debt addiction.

The trouble with this is that, like it or not, Greek banks are currently underpinned by ECB credit lines that come to and end this month. In order for the banks to survive they will need continued lines of credit.

Given that the ECB are saying that no new lines will be given if Greece reneges on its debt repayments, and Varoufakis is saying that he will take on no new debt, how are the banks and the Greek economy meant to survive beyond 28 February?

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