Greece’s Economic Crisis and its Effect: Grexit?
Greek banks have finally reopened, nearly three weeks after they closed sparking chaos and eventually riots across the country.
The latest developments do not signal the end of the financial problems in the country, but the news that the European Central Bank (ECB) has raised their level of emergency funding will help to restore order.
What’s Happened So Far?
Credit controls were put in place almost three weeks ago, limiting Greek nationals to withdrawing just 60 euros a day amid fears the country would run out of cash.In the early hours of Thursday, Greek MPs voted in favour of the new austerity measures by a majority of 229 to 64.
Now they must wait to discover their fate, with the German Bundestag and the parliaments of both Finland and Austria still to decide whether to approve the latest rescue package. Although this has now happened, further talks over securing the €86bn bailout are likely to last for another four weeks.
In the short term, the Eurozone ministers agreed a €7bn bridging loan from an EU-wide fund to keep the country running and to meet their next debt repayment to the International Monetary Fund (IMF).
The latest bailout agreed for Greece is their third in five years, with the country having now amassed debts of €320bn.
In May 2010, the Eurozone countries approved a €110bn rescue package as fears grew of a possible default. Just over a year later, a second bailout was agreed as EU leaders made €109bn available through the European Financial Stability Facility.
In June this year, the European Central Bank ended emergency funding to the country as Greece missed its first €1.6bn payment to the IMF; it has since missed a second payment.
Earlier this month, the Greek public voted overwhelmingly to reject the EU bailout terms, with more than 60% voting no, resulting in celebrations in the street of Athens. But were they short-lived?
Would Grexit Have Been a Better Option?
If the Greek people thought the austerity measures up to this point had been tough, they could be in for a nasty surprise.
As well making sure their payments to the IMF are met each month, they will also have the added pressure of making payments on the bridging loan.
The only ways to achieve that will be by increasing taxes and making drastic decisions when it comes to spending cuts.
Both of these measures will affect demand for goods and service as well having a detrimental effect on tourism, as everything becomes more expensive.
The Greek people have not been scared to show their anger so far, with protests spilling over into riots, and yet more austerity and more unemployment are only going to create more ill-feeling.