Greece Closes Banks, as Economic Crisis Escalates
June 29, 2015
After lengthy rounds of fruitless economic talks and bailout discussions between the government of Greece and European Union officials, something is finally happening. Unfortunately, what is happening may not be a very positive development for Greece or a unified Europe. Greek Prime Minister Alex Tsipras left the EU debt negotiations in Brussels this weekend and stated that he would put the EU’s current bailout package to a vote with a national referendum to be held in Greece on July 5. The 18 other officials representing the rest of the nations who use the euro as currency (the eurozone) voted against extending the deadline for Greece to pay a 1.6-billion euro ($1.8-billion) payment due to a creditor—the International Monetary Fund (IMF)—to July 6. The payment is due tomorrow, June 30, and unless there is a major change in thinking, the Greek government is about to default on its debt. For the first time, the possibility of Grexit—the nickname used for Greece leaving the European Union and abandoning its use of the euro as currency—seems possible.
Should the referendum go ahead on July 5, as Tsipras requested, a “yes” vote would mean that the Greek people were willing to accept another round of cuts to their national budget in order to qualify for aid that would allow them to make a repayment of 1.6 billion euros to the IMF. A “no” vote, in essence, would lead to Greece leaving the EU and reverting to its former currency, the drachma. A default tomorrow, however, may also lead to Greece leaving the EU.
News of the latest developments in the talks left the people of Greece worried and they began to withdraw large sums of money from their bank accounts. The lines at ATM’s were hours long in some areas. To prevent an actual bank run, yesterday Tsipras announced that banks in Greece would be closed starting today through next Monday (July 6). In addition, withdrawal amounts can be no more than 50 euros per day for Greek citizens.
Since 2010, Greece has been mired in a lengthy financial crisis. In 2010, the economic groups known as the “troika”—the European Central Bank (ECB), the IMF, and the European Commission—demanded Greece accept a harsh austerity program in order to receive a financial bailout for its banking system, which had been faltering since 2008. Since the agreement with the EU in 2010, Greece has raised taxes, cut pensions, and cut wages. After five years of financial pain, Greece has managed to reduce its primary deficit (the amount it borrowed, not including interest.) Nevertheless, because the gross domestic product (GDP) of Greece has declined by 25 percent, in reality, Greece has paid off very little of its debt when that debt is viewed as a ratio of GDP (as most economists do view such debt). When the debt ratio if accounted for, Greece actually owes more than it did five years ago. In 2010, the ratio of Greek debt to GDP was around 150 percent. In 2014, that figure had risen to around 175 percent.
Greece has been in a serious recession since 2008 and currently has an unemployment rate of 27 percent and a youth unemployment rate of 60 percent. In January of this year, Greece voted its sitting government out of office and voted in a new government led by Tsipras of the Syriza Party. Syriza ran on a platform that promised to end austerity and attempt to lessen the debt owed to creditors. Many of those creditors, however, are French and German banks that are not keen on agreeing to reducing the amount Greece owes. In addition, the EU fears that if it relents to Greece’s demand for a lower payment amount that other less affluent EU nations, such as Portugal, will follow suit.
Other World Book articles:
- Anti-Austerity Party Wins Greek Parliamentary Elections (2015-Behind the headlines)
- Greek Debt Crisis Becomes More Acute (2015-Behind the headlines)
- Eurozone Crisis—N0 End in Sight (2012-a Special report)
- Crisis in the Eurozone (2010-a Special report)