An idiot’s guide to the Greek debt crisis - Part 2
Is it still all Greek to you?
In the Part 1 of our idiot's guide to the Greek debt crisis, we discussed its beginnings, the size of the debt, how this soap opera came to be, and how the ‘solution’ sort of failed. So what happened next?
A new hope?
It was only a matter of time before the people took to the streets and demanded that the reign of austerity ends. Things took a turn when they elected Alexis Tsipras from a left-wing, anti-austerity party, Syriza, in January 2015 – kind of like hiring someone to negotiate the terms of payment for your debt on your behalf.
At first, things seemed to be going pretty well and Tsipras was able to negotiate a four-month extension of the bailout with various creditors, making Greece still under the troika’s wings and with access to funds. But jump to four months later, their deadline was coming and Greece was still nowhere near a recovery.
A bold move
On 25 June, Greece met with some members of the family to negotiate another extension: five more months and €12 billion more. The troika heeded his call but proposed some new bailout conditions, which involved higher taxes, pension cuts, healthcare budget cuts, and stricter anti-corruption policies, among others.
Of course, Tsipras, as negotiator, could have accepted these terms on Greece’s behalf, but he didn’t want to shoulder all of the responsibility (and probably thought they needed a little bit more time). So two days later, he walked away from the negotiations and called for a referendum. Kind of like a public poll. He asked Greece and its people whether they accept the conditions of the bailout. The future of the people of Aristotle, Plato and Alexander the Great was hanging on a ‘Yes’ or ‘No’ question.
Negotiations failed as Tsipras walked out the door and did his public poll. And just when you thought things could not get any worse, Greece missed a payment to uncle IMF on 30 June, the very first developed country to do so, putting it in the same group as estranged distant relations Somalia, Sudan and Zimbabwe.
The referendum – Yes or No?
On 5 July 2015, 61% of Greeks voted ‘No’ to the referendum (with a few nudges from Tsipras), but the troika thought, “Well, too late for that now because the offer has expired.”
But of course, this public poll says a lot. Evidently, the Greeks and Tsipras had had enough and were against further austerity measures. But this made Greece’s creditors nervous. They were starting to lose any hope that any kind of deal would be made, making a ‘Grexit’ (a Greek exit from the eurozone) more likely.
As negotiations collapsed, banks started closing down and cash was becoming more difficult to get hold of. You might have seen this on the news lately – long queues at ATMs because of daily withdrawal limits (€60 per day per withdrawal), pensioners scrambling to get some cash, and an old man weeping on a pavement because he couldn’t get his hands on his pension money (a strong reason to keep your money offshore, as we often recommend).
So what about the ‘Grexit’?
As discussed in the first part of this idiot’s guide, experts believe that all hell broke loose when Greece adopted the euro and that the only way for Greece to move closer to recovery is to drop the euro, take back monetary control and use their old currency (the drachma), and exit from the eurozone. Ergo, ‘Grexit.’
Can’t they just quit and say, ‘Hey, I can’t pay you guys anymore’
Technically, Greece can do that. That is, default on all of its debts and probably exit the eurozone. But unlike an individual, if Greece defaulted on its debts, it would affect the whole region, even the global financial market. Bear in mind that Greece has creditors all over the world, and this might result to another financial collapse, just like the Global Financial Crisis in 2008, which could mean poor economies, shutdown companies, and jobless individuals.
And if Greece decided to choose a ‘Grexit’, well, no one really knows what might happen, except that it might be catastrophic and spread to other corners of the world. This is what they call ‘contagion’, like the flu. But fear not, says the troika. They have given out vaccines to prevent the spread of this illness.
So what happens next?
Just recently, Greece and its creditors have finally arrived at a new bailout deal for a €86 billion, three-year bailout plan, with, of course, new austerity measures which weaken Tsipras’ hold on the Greek government.
But if you’re wondering what the future holds for Greece, no one really knows. Experts are already predicting a Grexit. Others say Greece might stay in the eurozone but drop the euro, or vice versa. Others have more apocalyptic predictions, while others moan about the beginning of the end of the great European project that is the EU. No matter what the outcome, all we can do is sit back, hope for the best and watch this soap opera reach a conclusion.
The big, fat Greek crisis
We hope this guide served its purpose and that you finished it with more knowledge than when you started. Of course, Greece is a sovereign nation and has more complex issues to deal with than an average person, but next time you get invited to dinner and the Greek debt crisis comes up, just try and imagine Greece as that average bloke and you’ll get by. If only Greece had a knowledgeable financial adviser...
About Joy Aquino
Joy Aquino served as a Marketing Associate for AES International before relocating to Germany.