Greece is supposed to spend the money for International Monetary Fund (IMF) almost 1.6-billion euros by next weekend. It\’ll almost certainly miss that payment. Its hopes of securing an extension of bailout funding in the IMF, European Union and European Central Bank are nearing zero. That mark is going to be hit unless Greece and it is creditors somehow snatch resolution in the jaws of debacle.
Five ways this mess in Greece could shake out
Greece has never been this close to default and financial markets are panicking. But what exactly is the country’s fate? Here’s a look at how the scenarios could engage in and what this means for the world
Probably, perhaps certainly, they won\’t.
If the failure of last-ditch talks a week ago didn\’t see to that, then Greek Pm Alex Tsipras\’s surprise announcement he would hold a referendum next weekend around the creditors\’ draft proposal did.
In the meantime, Greeks are voting using their debit cards, and you can\’t blame them. They have been doing it for days now, arranging at ATMs to get cash out in case the banks don\’t open on Monday. After which on Sunday, Greece announced the bank doors would indeed be closed the following day. Smart Greeks.
You can see what Tsipras is thinking, though. A referendum could be a master stroke in domestic politics. If Greeks vote \”yes\” to the creditors\’ proposal, Tsipras will have political cover to basically renege on the promises he made to get elected in January. (You know, securing debt forgiveness, protecting pensions, telling creditors to stuff it, etc.) If Greeks vote \”no,\” he reaches honour those promises by defaulting on payments and even perhaps pulling out from the eurozone, which would allow the adoption and devaluation of a new currency.
The creditors are clearly miffed. Even with a \”yes\” vote, it isn\’t clear that they\’ll care to return to the table for additional talks which will go nowhere. They do not trust Tsipras. They\’ve already refused to grant a few more days of bailout funding long enough for him to hold his domestic gut-check.
Greece in shock as banks shut after talks with creditors break downGreece shuts banks to prevent financial collapse as Greeks scramble to withdraw cashGreek Pm Alex Tsipras calls referendum on Greek debt deal
Tsipras is anticipated to present his populace using the creditors\’ draft proposal, that was never intended as the subject of a referendum. The EU did release it last week, though, and also the three-page document – remarkably brief, considering the huge bureaucracies involved – doesn\’t offer much for that layperson to like, let alone understand. On the other hand, for all the griping Tsipras and the supporters have made about the creditors\’ cruel and weird austerity demands, there are many good ideas within the proposal.
One is that Greece reforms its tax administration, which is notoriously bad at collecting taxes. Another is to open restricted professions – Greece has a lot of them, like engineers, notaries public, actuaries and bailiffs – and liberalize tourist markets. Oh, even though they\’re at it, the creditors are calling for an end to the huge fuel subsidies enjoyed by Greek farmers and tighten the definition of \”farmer\” for tax purposes (farmers get preferential tax treatment).
But obviously the details won\’t matter much. The question will really get down to whether Greeks think staying in the eurozone may be worth feeling even more pain compared to what they already have after 5 years of austerity. The choice isn\’t far better, and maybe even worse: Grexit, rampant inflation, high unemployment, an inability to access debt markets.
With or with no euro, Greeks are likely to feel more pain. The choice is between the pain of welfare dependency, with a provider who\’ll always wish to shrink the dole, or the pain of inflating the right path out of debt.
There might be a middle way, like Greece pegging the revenant drachma to the euro or even the greenback, but one has to wonder whether Tsipras and his hard-left Syriza government wouldn\’t discover the inflation option more tempting, given his dug-in position to date.
Still, unless an option to Grexit is invented, the economical crisis in Greece – that is already in recession, and where the the economy have reduced by 25 % in the past five years – will deepen. We can expect more social unrest within the birthplace of democracy. And that might have spill-over effects which go beyond economic policy, or anything Tsipras or even the EU can control.
Will Greeks\’ pain become Europe\’s – and the world\’s? To date, European and United states stock markets have been greeting all this with a sigh along with a yawn. The STOXX 60 actually closed up last week, as investors seem to have concluded that the fallout of the Grexit has already been priced into markets.
They might have to think again.