Mention, the global recession of 2008 to most of Europe and one of the things that quickly springs to mind, is ‘Greece’.
The southeast European nation has come to epitomize that era; an era that invokes negative images; an era that now serves as a reference point for many a country whenever economics is involved; an era many would love to forget. Greece has metamorphosed like a cancerous tumor that puts the European body (EU) at a crossroads on what life-changing decision to take: do we cut it off or learn to live with its murderous behavior?
In 2009, Greece dropped a bombshell by announcing that the previous regime had lied by understating its deficit figures, something they had been doing for years. Expectedly, this would come at a cost – a costly cost at that – people disposed of their Greek assets, no one would buy Greek bonds anymore, let alone entertain the crazy idea of lending them money! The Greek economy spiraled out of control and came tumbling down with a thud from which it has never lifted itself from.
In fact, the more help the country has received, the deeper it has sunk into the economic hole. The troika (International Monetary Fund, European Central Bank and European Commission) was keen to avert a crisis and so came to the rescue by issuing the first of two bailouts for the cash-strapped economy. This would in time come to total over 240 billion euro ($264 billion).
But it wasn’t for free, nothing is. It was accompanied by a set of stringent austerity terms which called for huge budget cuts and sharp tax increases, as well as for the country to end tax evasion, streamline its government and make it a more ideal place to conduct business. The Greeks though, have failed miserably at it.
Grexit: At a Crossroads
As we speak, things have reached fever pitch: Greece wants out in a move that has coined the term ‘Grexit’ – Greece’s exit from the Eurozone. Past Sunday, the country made history by resoundingly voting ‘No’ in a referendum on whether to accept the austere bailout terms that its international creditors (led by Germany) were advocating for which sent shockwaves across Europe.
Just before the vote, the then finance minister YanisVaroufakis (who resigned this week because of his supposed abrasive style that was ‘alienating creditors’) said Greece won’t pay the 1.6 billion-euro loan it owed the IMF which was due 30th June unless it was offered an extension, which further plunges it into debt.
The country argues it’s better off ditching the Euro because it’s too expensive for its good. And Europe can’t print more money for Greece because it would erode the currency leading to inflation in the other EU economies. So, Greece wants to print its currency (reverting to the drachma), a move that would boost its exports but stifle the import market, amid other implications for all involved.
Game of Chess
By refusing to repay its debt then voting to be excluded from the Eurozone, isn’t Greece making a grave mistake? It appears so. However, Prime Minister Alexis Tsipras thinks he has it figured out, and recently, he has been getting his way.
Not only does he have a new finance minister in economist Euclid Tsakalotos who might help pave way for a good deal, but also he got the backing of the opposition this Monday when he shared with them his strategy for arm-twisting the creditors for a new agreement.
He has also been a proponent of Grexit whose triumph he believed would strengthen his hand in the negotiation, and the vote could not have turned out better.
Eurozone Emergency Summit
This Tuesday, leaders of the Eurozone that comprises 19 countries are set to hold talks to discuss the next move following Greek’s referendum that spelt rejection of the bloc’s bailout terms.
As we await the latest developments, banks are set to remain closed for a few more days and the cap on ATM withdrawals goes on in a bid to reserve the depleting cash reserves and prevent a run on deposits.
The European Central Bank has some good news after announcing it will maintain its levels of emergency lending to Greece so as to circumvent a collapse of the country’s banking system, albeit at higher collateral which in turn piles more pressure on the banks.
It’s a bad time to be Greek.