So there has been much discussion about Greece, the state of its economy and where it will leave the EU. Elysium Magazine puts together everything the discerning gent needs to know to get involved in the conversation.
Greece – the current state of play
Greece’s voters spent this weekend voting on a referendum on the terms of an austerity package that European leaders insist that the country implement in exchange for continued financial assistance. The essence of the debate is whether Greece should do austerity on Europe’s terms — or its own. In other words, does it have to cut social spending significantly more, or can it reduce deficits by raising taxes?
Syriza, the leftist party that soared to victory on an anti-austerity message, is betting that Greeks will reject Europe’s demands, giving Greece either a stronger hand at the negotiating table, or, if not that, a pathway to shed its debt and reclaim its economy. It’s a gamble that could shape the economy of this nation of 11 million for more than a generation.
How has Greece got itself into such a mess?
Tax
Over the last 5 years, Greece has had a huge problem collecting tax income with 89% of tax receipts from 2010 going uncollected (OECD). Much of this has been blamed on an undisciplined government.
Unemployment
Greece has the worst unemployment in Europe – even worse is the picture it paints for young workers with 60% of 16-24 year olds struggling to find employment (World Bank).
Funding
Greece needs to negotiate hard with The European Commission (EC), the European Central Bank (ECB) and the International Monetary Fund (IMF) and despite the offer of further funding; Greece was unwilling to accept the terms. As soon as people became aware of the impending political fall out – a rush to ensure their savings remained with them started. A limit was then applied to withdrawals to avoid a bank run and further money going abroad– 60 Euros a day, which doesn’t seem like much.
Voting
At the time of writing the polls were too close to call for an outright Yes/No for Greece. A betting man would say the overall results would probably be a Yes in favour of the terms set out by the international community for Greece to return to its previous state however, strong comments from the Finance Minister for Greece has voted for a clear No vote.
A clear implication of a No vote could be a requirement to leave the Euro Zone – its clear that the Greeks don’t want to leave, hence another reason for a Yes vote over the weekend.
Implications on Greece if they vote No?
If Greece votes “yes,” there will probably be another round of elections — Europe doesn’t trust the Syriza-led government to actually implement austerity.
If Greece votes “no,” it might have a stronger hand in negotiations and Europe might have to relax its terms. But investors would freak out and refuse to lend Greece money at all but the most exorbitant rates, causing a massive financial crisis there, as banks and the government lack essential funds to operate.
Regardless of what happens this weekend, the big risk is what happens today, as former Treasury secretary Larry Summers wrote this weekend:
“Greek banks will run out of cash early in the week, probably on Monday. There will be an immediate need to either provide them with some sort of IOU scrip to meet demand for funds or to resolve them in some way, as Greece lacks the capacity to create Euro. What the Europeans do and the decisions the Greeks make will shape the future of Greece and the Euro area.”
What does it mean to us if Greece leaves the Euro Zone?
Europe would bear the brunt of the failure. The pain would be a loss in real money – hundreds of billions. Greece’s government hasn’t just gotten 240 billion euros, but its banks also have received 89 billion euros in loans from the ECB that might be defaulted on in the case of euro exit. Second, there’d be some contagion. Borrowing costs would creep up for Italy, Spain and Portugal, but the fact that the ECB is already buying their bonds and has promised to buy as many as it takes to keep their interest rates low means they shouldn’t rise that much.
Third, all this uncertainty should make the euro fall further, boosting their exports in the process. And finally the worst thing that could happen to Europe is if Greece does well after it leaves. That would embolden anti-austerity parties in the rest of the continent by showing that they have nothing to lose but their fiscal chains by challenging the continent’s budget-cutting approach.
Is it safe to travel to Greece?
Greece has been upfront reassuring visitors that it is safe – given the fact that tourism contributes 15% to its GDP its no surprise! Official advice should be sought from the Foreign Office, but be sure to take enough cash if you do travel!