July 2, 2015
The Greek Government last weekend announced that under the existing debt program it would not be repaying a EUR 1.5bn loan to the International Monetary Fund (IMF) due by June 30. To add yet another twist to events, the government announced that it would let the people decide whether to accept the new bailout program proposed by European creditors by holding a referendum on Sunday, July 5. As a result of this and amid growing concern that the country was staring at financial turmoil and a possible exit from the Euro currency, the European Central Bank (ECB) stated it would not increase its financial support to Greek banks. In a bid to stifle a run on Greek banks the Government ordered banks close until July 6 and withdrawals from ATMs be capped at EUR 60 ($87).
While the Greek economy only comprises around 1% of European GDP, it is the unpredictable impact on the Eurozone and financial markets that has sparked investor fears. A Greek exit from the Euro would send the country into severe recession, create uncertainty around the future stability of the European Community and cause political ructions across the region. Within Greece itself, an exit from the Euro would mean a new currency, high inflation and strict capital controls as the nation strives to establish a new economic platform.
The result of Sunday’s vote is unlikely to provide certainty or comfort for the Greek people. The country’s finances are rapidly deteriorating and any ‘Yes’ vote will carry with it a commitment to tough and austere conditions. A ‘No’ vote does not mean Greece will exit the Euro but it becomes a likely scenario. The government believes a ‘No’ vote will place it in a stronger negotiating position to strike a better deal. Should Greece exit the Euro, the full social and financial ramifications are unknown. Most commentators believe an exit is to be avoided as it will push the country into depression and even greater suffering for its people Others believe an exit is a price worth paying if Greece is to gain the opportunity to shape a future, a future not as thriving as its neighbours but free of the punishing constraints it now feels.