Two days ago at 11:00pm a deadline for Greece to repay €1.8bn to the IMF came, and it swiftly passed. Greece became the first developed country to ever default on the repayment of major debts. Probably not the sort of milestone that they aspired towards, but it is the one that they have achieved. This is problematic for Greece to say the least, and I will assess how they have reached this point and what is in store for both Greece and the Eurozone as a whole.
This has been the biggest challenge for the leading Syriza government of Greece that swept to power in January 2015 on a wave of promises. The Greek people have become tired of the austerity that had been imposed by the previous coalition due to the reforms and agreements that had been made with the Troika in order to manage the repayment of Greece’s debts. Syriza have not fulfilled the hopes of the people who elected them, who are becoming increasingly confused and desperate. The negotiations between Greece and the Troika have been strained due to the inexperience and naivety of the Syriza leadership, who have never held positions of power before. Let alone during an extremely pressurised and turbulent time for their economic and social security.
Greece is in serious debt, however the lack of a repayment is unlikely to shift their situation within Europe enormously. They are unable to pay it back, and that much has been evident to all involved for a while; now whilst it is possible that the IMF can demand the immediate repayment of €180bn at any moment, that is unlikely to happen. Furthermore, the amount of €1.8bn is minimal in comparison to the vast sum of the debt that Greece owes, which alarmingly is €323bn.
The government of Greece have called for a referendum on the 5th July in order to establish the next course of action. The referendum poses two different options: one is to accept the conditions as laid out by the Eurozone, the other is to leave the Eurozone. Neither of which will be able to solve the current problem that is plaguing Greece. The Prime Minister of Greece, Alexis Tsipras, has promised that he will resign if the Greek population vote to stay in the Eurozone and to bind themselves to more reforms that are imposed at a supranational level. Ultimately, he wants to regain the power over policy for the Greek people. However, a promise to resign is rash and reckless during a time of such uncertainty.
If we look closer at the two propositions that the Greek people have to choose between and the previous reforms that are shaping the current events, then we will see neither is satisfactory. The choice that is being shaped as a ‘yes’ vote is the choice to stay in the Eurozone, but it comes with having to accept conditions and reforms imposed on Greece by the creditors (IMF and ECB). These reforms involve reducing consumption and investment, which will serve to suppress GDP, following closely in the footsteps of the reforms that have got Greece to where they are now.
Caroline Lucas made a very interesting statement earlier about the impact of austerity on Greece, which reflects upon the past reforms and the proposed reforms for Greece. The austerity has been imposed by successive governments in Greece as conditions for accepting relief programmes from the Troika in order to keep up with repaying previous debts. Lucas claims that Greece is being deliberately humiliated for daring to stand up to this austerity that has damaged Greece’s economy and society. The debt to GDP ratio in Greece has risen since these reforms have been put in place, which is why Syriza are calling for some sort of debt write-offs due to their inability to repay without causing further cuts and harm to the Greek people. Austerity has been the go-to policy for balancing the books in governments across Europe, though clearly it has not had the desired effect in Greece. It is almost a lazy response to the problem of debt by saying spend less, save more, whilst ignoring the implications this has on ordinary people and their quality of life.
Speaking to a friend in Athens, he is saying that people who would not usually protest are out on the streets pushing for the ‘yes’ vote whilst the current government is pushing for an exit from the Eurozone. This has become almost a battle of negotiations, with the people of Greece having to negotiate with their own government and the government having to negotiate with the institutions that have control over their debts. We are yet to see who will lose out in these negotiations. But what is clear is that this will take time, with the IMF stating that further decisions should not be made until the referendum has occurred. Time can be beneficial for helping to make the right decision, but this time is leaving the Greek people feeling even more and more uncertain. With their banks closed for a week and them only being able to withdraw €60 a day, the worry of losing their money is grounded in a frightening reality.
Whereas the government is clearly in a state of deep confusion, evidenced by numerous conflicting statements made by Prime Minister Tsipras yesterday. Just hours after offering some sort of compromise and willingness to cooperate with their creditors, he made a statement accusing Europe’s leaders of ‘blackmail’ and urged Greek people to defy them. This would mean Greek people voting ‘no’ in the referendum, refusing the terms as laid out by Europe and leaving the Eurozone with an inevitable return to their previous currency; the Drachmas. I view this as more of a power play rather than having the true interests of the people at heart. An exit from the Eurozone is perceived by the government as leading to greater control over Greece’s economic policies for the government, meaning they could avoid further austerity. However in reality, it would not automatically eliminate their debts, it would simply make them easier to avoid. Further to this, people would see a real loss of wealth with their current savings being reduced due to the unfavourable conversion. It would be a greater crisis to the one that they are currently in right now.
In reality, this makes neither outcome of the referendum able to set Greece on a more positive path. It is unclear how they will fare out of this crisis and it is equally unclear what people really want. With strong protests coming in favour of both the ‘yes’ and the ‘no’ vote, the outcome of the referendum is key to uncovering what people really want. However, with only two limiting options available, it will be impossible to gain a comprehensive picture. The government is equally as confused relaying opposite messages to their creditors and to the people that they claim to represent. This is definitely an interesting story to watch with many difficult decisions to be made.