A new dawn in Greece. The sun gradually sheds light on Athens, the splendid city of Greece. This 30th of June is not a normal day. Today, the breathtaking and historical monuments stand numb while staring silently at the helplessness of its population. This is not the first time that the magnificent Greece scenery is witnessing dire times. Indeed, the country has previously been crippled through devastating circumstances including the civil war, military dictatorship, Nazi occupation and corruption.
Currently, Greece is facing another turmoil, one that is threatening the country to move away from the Eurozone - its support system. While our former article has highlighted Greece's situation, every coin has two sides and so does this poignant story : let's meet there.
Will Greece survive-The Billion Dollar Question?
Greece has been through harsher impediments and right now, this economic crisis adds to its cart with the troika backing-off from another bailout and refusing any extension of its loan repayment. But it is pointless to just watch and sympathize with the country's woes. Greece will struggle and strive to keep its economy afloat as it has the right weapons to fight back: a world-class tourist destination.
Well, perhaps the outlook is not that optimistic but Greece is known as the fighter and it will undoubtedly retaliate sooner or later. In fact, Prime Minister Alexis Tsipras is actively instilling hope in its population as witnessed from his recent tweets:
Greece Crisis- the real picture
Greece's total amount of debt accounts to €323bn among which €141.8bn needs to be repaid to the Eurozone under the European Financial Stability Fund. Elsewhere, it also owes the International Monetary Fund (IMF) €1.6bn, that is 10% of the borrowed sum as well as 6% to the European Central Bank (ECB). There are also many other creditors to whom Greece is indebted.
Prime Minister Alexis Tsipras renewed appeal to extend the existing bailout was categorically denied by the Eurozone finance ministers on 27 June 2015 while the European Central Bank (ECB) refused another helping hand to its used-to-be ally. The reason behind them backing-off from scooping the Greeks out of their miseries stems from the fact that Mr. Tsipras has refused any negotiation proposed by the trio.
Indeed, Mr. Tsipras shun down any event to discuss the proposals elaborated by the European Commission, the ECB and the IMF.
The latest draft proposal, as retrieved from the European Commission Press Release Database deals with these different elements:
- Supplementary Budget (2016-2019)
- VAT Reform
- Fiscal Structural Measures
- Pension Reform
- Public Administration, Justice and Anti-Corruption
- Tax Administration
- Financial Sector
- Labor Market
- Product Market
The Eurozone pins high expectations, anticipating that the Syriza party's head will finally yield to the demands of the trio. Nevertheless, the headstrong Alexis Tsipras believes that the 'inconsiderate' strains being imposed is just another attempt to dull the potential and capabilities of Greece.
Eurozone- The Benefactor?
Not so. This 30 June 2015 marks another watershed moment in history of the Greek Gods' country: the deadline for the repayment of the loan is today given that the troika has declined the lengthening of the loan repayment. While some stare dazedly at their Prime Minister negotiating for better conditions, others took to the streets to voice out their disappointment.
The situation became even more desolate when the banks' close-down was announced. Hundreds of people are queuing outside ATMs with the hope to withdraw some of their hard-earned money. Mr. Tsipras however reassured the Greeks that their investment is safe as this closure is only an effort to stop liquidities from 'escaping'. As a result, the maximum amount that can be withdrawn from ATMs is restricted to €60. Banks are supposed to remain closed until the 6th of July 2015 while a panic-stricken population of 11 million witness economic instability.
If Greece leaves the Euro, there will inevitably be a stain on its image. With the recent crisis going on, the Euro underwent quite a blow on the financial market, steeping low among its counterparts. This said, the Eurozone will likewise tarnish its image as the one who pledges 'solidarity'. Today, a weaker member is in trouble and is not being rescued, for it is considered as 'expendable'. This situation also contradicts the 'irreversible' Euro situation often cited by ECB's head Mario Draghi. If the Grexit happens, it will spark fear in other weak economies such as Spain and Italy, thereby creating an existential crisis for the Eurozone. Will the Euro be able to dispel the fear factor out of its 19 member states? Only time will tell.
Eurozone- The risk was already there
What's more is that the agreement that binds all the member states together does not make provision for circumstances when a nation decides to leave the monetary union. The probable Grexit is the alarm bell that will trigger many EU heads to ponder on the shortcomings of this agreement.
The Eurozone has been reconstructed from a new angle, an angle where state members knew that joining the EU was not an infallible strategy. Indeed, weaker economies systematically recognise that they would have to perform as much as the stronger economies reunited. This fiscal union includes a set budget rules established for all. The inability to give the expected performance would undoubtedly result in harsh austerity measures.
Save the date
Mr. Alexis Tsipras has called upon a referendum; a democratic method for the Greeks to vote if they want to stay in the Eurozone or not. However, this referendum is not as simple as it seems, it has other elements that need to be considered by the Greek citizen. They need to voice out whether they accept the austerity conditions imposed by the EU. The referendum is scheduled for the 5th of July, preceding its U.S ally independence celebration. Sadly enough, while the U.S citizens would be rejoicing this historical date marked by fireworks, family reunions, barbecues and concerts, Greek citizens on the other hand will prepare themselves to mark the history of their country.
Grexit - a new currency in perspective?
The uncertainty that looms currently engenders a lot of speculations among financial analysts. Will Grexit be followed by a new currency?
The decision to join the Euro was a common agreement for many state members to leave a weak currency for a stronger one. Greece took the leap as well. However, if today it decides to close the door to its used-to-be partners, Greece might find itself contemplating on another currency of its own. However, the process will not be this straightforward. Implementing a new currency includes much groundwork and Greece has not had sufficient time to work on this concept. To boot, decision-makers will need to think about the risks that this choice would trigger, with one of them being that the pre-euro currency will not be as strong as other established currencies.
Likewise, Greece cannot hasten a new currency implementation without proper planning; this includes the print of money. Well, it could have recourse to money printing until its monetary policy becomes looser and this would engender economic growth. Nevertheless, the main danger that will emerge is that too much money printing could result in inflation and credibility issues. As such, the right balance will be needed.
Greece saga, a story that still needs to be unfolded
To date, Greece has not really sat down at the negotiating table as 'expected'. What can be said is that all the factors discussed above bring us to the conclusion that the whole state of affairs deals more with a political enjeu rather than economics. Buckle your seatbelts, it's going to be a long bumpy ride.