Is it over for Greece?

Is Grexit happening soon?

Is there going to be a deal for Greece, are they getting a delay or will they finally default on their debt and leave the Eurozone? Such is the question in the Greeks’ minds as they look for answers from their government, the European Union and the International Monetary Fund.

Greece has definitely landed itself in the biggest turmoil ever and situating the start of the story is in itself very complex. The refusal to modernize over the years has taken Greece down while anti-austerity measures in the country have further added to its woes. Now that Greece defaults on its debts, the Prime Minister Alexis Tsipras, leader of an anti-austerity government is having a hard time in keeping up with its creditors.

The current trouble:

1.What led them to such a serious debt problem?

On 25 January 2015, the Greeks elected their new government which is an anti-austerity government. The Syriza party is such a team which does not want to cut on its rising debt, pensions and other major expenses to meet the demands of its creditors. If the Greek government would have been one adopting austerity measures, then things would have certainly been different. An austerity-led government would have decreased government spending so as to control public-sector debt, especially now that Greece has run out of solutions to its problems.

Feud in the Middle East

During the global economic downturn which began in 2008, many governments were faced with reduced tax revenues and incurred spending on a high level. Such was the state of many European countries that nearly all of them turned to austerity measures in order to control their budget. Austerity measures proved to be extremely beneficial and became imperative in Europe. Almost all the creditors pressurized these countries into aggressively adopting austerity measures, with the good results that we all know.

2. Greece’s actual state:

Talks between Greece and its creditors have been on-going since February this year . The country was allocated a number of deadlines which have not been met on time. Talks have continued to fail while Greece’s anti-austerity measures did not conform to the reform structures. The country went on to become the epicentre of Europe’s debt crisis after struggling to pay its debt while its creditors gradually lost control.

Impact of the constitutional revolution

It is the worst situation for Greece as Europe is also taking part in this doomsday scenario. Indeed, bailout talks broke down when the IMF (International Monetary Fund) walked out on Greece, deeming its proposals to be unreasonable. The IMF further pointed out that Greek Prime Minister Alexis Tsipras was not serious about the deal, as he showed no interest in finding real solutions. The IMF also added that Tsipras’ tactics relies on delaying the deal while waiting for more deadlines.

Apparently, there will not be any more deadlines allocated to Greece and the country will eventually default. In addition to that, the European authorities will take back their support from Greece’s banking sector, increasing pressure on the country’s capital. Greece will then have to back off and revert to its own currency, known as the “drachma”.

The Aftermath:

The global market is already heavily affected with the possibility of Greece leaving the eurozone soon. Each and every piece of news pertaining to the Greece turmoil is creating daily buzz on the charts while there is much volatility on the market, depending on the sentiment of investors. The European stocks, as well as currencies, are also down, with the Euro currently shedding its gains. It is a matter of great worry and it is still unsure whether the storm will pass soon or become stronger.

Impact of the constitutional revolution

After the 2008 recession, Europe is now in a better position to deal with the current crisis. Some analysts are still optimistic about the situation, as they think that there will be a sudden agreement and Greece will stay in the Eurozone. They believe that fresh aid will be unlocked and will avert Greece from defaulting. However, this is all about a question of time and proper management. After several failed deadlines, there is not much scope left for Greece for the relations between Greece and its creditors have turned sour over time. While final talks have been scheduled by the end of the month, it also implies the end of the current bailout.

What will happen when Greece leaves?

Hopes are almost gone for Greece, as no breakthrough might be found after such negativity. A lot of other things might be jeopardized if Greece does leave the Eurozone. An uncontrollable crisis might surge, bringing along huge risks for the banking system and financial stability of the country. Many believe that a “Grexit” would cause some confusion on the whole market which may in turn prompt investors to back off. On the other hand, others believe that markets will try to steady themselves.

When the turmoil first began, Greece’s debt caused much trouble to the government bonds of countries like Italy and Spain. As Europe’s problems amalgamated, it also contributed to the crash of MF Global, as stated by an american financial firm. Fears that this will happen again are cropping up and while some analysts say that it will be manageable, others are quite pessimistic about it. Current reports show that old people in Greece are not receiving their pension allowances while many people are jobless. Endless rallies against the government already began since the elections of January 25 and people are trying to urge their government to drop anti-austerity measures in order to adopt an austerity approach.

Impact of the constitutional revolution

Should Greece leave the eurozone, it will further impact on Greece stocks which already fell by 5.3 percent at the start of this week, while the banking stocks lost more than 10 percent. Following “Grexit”, Greece will return to its previous currency which is the “drachma”. People might also start to pull their money out of the banks “en masse” in fear that Greek banks might collapse due to high deficit. Furthermore, the banking system may weaken as the European Central Bank might pull off its support towards Greek banks. In addition to all these, a social unrest might occur as the unemployment rate looks likely to increase, with the current figures above 20 percent.

Conclusion

Greece looks ready to leave the Eurozone with its debt amounting to 323 billion euros, which is more than 175% of its Gross Domestic Product. In total, it owes $ 264.5 million to the European Union and the IMF, which represents 75% of its total debt. The markets will be highly volatile these days with the Euro and European stocks expected to fall while it might also impact on the Dow Jones Industrial Average. Investors are hereby advised to scrutinize the unfolding of this saga while simultaneously keeping a close eye on the Euro.

Warren Tancredi By: Warren Tancredi
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