The saga started when Greece’s economy could not make it through the financial crisis of 2008 without being bailed out by the IMF. The conditions of the bailout were extensive calling for reform in almost every economic sector. Without an ounce of leverage in the negotiations, nor a choice in the matter, Greece welcomed the cash infusion with open arms.
In the face of pressure to implement drastic and largely undesired reforms, Greeks responded by electing a new socialist Prime Minister by the name of Alexi Tsipras. He won on the platform of fighting the IMF’s terms and keeping welfare programs afloat.
The result has been disastrous.
After months of vitriolic rhetoric between Greece and its creditors, the two simply have not been able to agree on tangible terms. Despite reports of Greece making concessions earlier in the week, the IMF voted to maintain its Tuesday deadline. That said, reports surfaced Monday that the EU still insists a deal is possible as unlikely as it may be.
Neither side can give up since both have an interest in keeping Greece in the EU. Greece needs the EU so that it can retain what little stability it has left. The EU is also the only institution with the motive, means and opportunity to save Greece from further economic turmoil. As if that wasn’t enough, this turmoil would be exponentially multiplied by the trade barriers erected from losing the title of being an EU country. Transitioning from the euro to the drachma will be perilous and stunt any semblance of a recovery Greece has made to date. If Greece leaves, a dangerous precedent will be set.
Believe it or not, there are actually countries in the EU that are in worse shape than Greece. Showing those countries that it’s the IMF’s way or the highway is simply not smart. Allowing Greece to walk away from the EU is a slippery slope, not just because of the precedent, but also because of the broader implications it would have on an already volatile international economy. If Greece defaults and as a result adopts the drachma and falls even farther, its troubled European counterparts would stand little chance of staying afloat. This would lead to a collapse of the euro, and as Angela Murkel, Chancelor of Germany and Europe’s most powerful figure, put it, “If the euro fails, Europe fails.” The dominoes would fall ushering in a recession of a far greater magnitude than 2008.
With a solution all but impossible, Greeks now have a choice: accept the IMF reforms or leave the EU. In true socialist fashion, the decision will be put to a referendum next Sunday. At this point, no one knows what will happen, but both sides are furious and uncertain of the future. In debates concerning the referendum, many have summarized the decision as a question of currency; essentially, Grecians must chose if they want to stay with the euro or revert to the drachma.
Greece probably won’t find €1.8 billion lying around in the next day; Greece will default on Tuesday. This widely accepted fact has depressed economies everywhere and increased tensions between rich and poor countries within the Eurozone. There will be extensive debate between today and Sunday, then Greeks will vote. But Sunday will not be the end. The real date to fear is July 20th when Greece owes the European Central Bank €3.5 billion for the purchase of government bonds. Stay tuned, it’s going to be a wild ride while the world’s economy hangs in the balance.
Image: Via Flickr/Nikos Koutoulas