By: Danielle Apfel
To add to the saga that is now becoming a full on Greek tragedy, yesterday, Greece voted “no” to the proposed bailout terms. After continuously seeking loans from international lenders without trying to seriously repay their debts, Greece’s luck may have just run out.
After receiving the latest in a series of bailout terms from creditors like Germany, the IMF, and the European Central Bank, Greece’s government put the terms to a vote of the people, or what is known as a “referendum.” Rather than accept the austerity measures needed to replenish the Greek banks and help reboot their economy, the Greeks voted “no,” or “oxi.”
Although they refused this offer, as well as all others up to date, the Greeks are still asking creditors for more loans, hoping to negotiate a better deal in which they would not have to accept such severe austerity measures. In a move to garner more support of compromise, Greece’s finance minister Yanis Varoufakis resigned today. As is evident, his confrontational and independent negotiating style has not been effective in reaching an agreement thus far. While a new finance minister may help open up the discussion with international creditors, Greece is still in crisis mode.
Without a new agreement, creditors have halted the flow of funding to Greek banks. To counter this, the government officially shut all Greek banks last week, and they have remained closed since. Citizens were given a limit of how much cash they could withdraw at a time in order to keep the banks from failing and running out of capital. Although this shutdown was only meant to last a week, the recent refusal of the Greeks to accept the bailout terms has caused the government to keep the banks closed for an additional two days. Along with the shutdown of the banks, the government also initiated restrictions on moving money to foreign banks. With no new credit or funding, these banks can only hope to stay afloat for so much longer.
The banks failing would have a catastrophic effect on the Greek economy. Their vast debt cannot be sustained without further credit form foreign institutions. Should Greece fail, there will no doubt be a downturn in the value of the euro, and in the global market as well.
The market did take a hit today, though not as severely as investors had predicted. The “no” vote has shaken the confidence in Greece’s ability to remain in the Eurozone, and doubts have arisen as to Greece’s future.
As much as the EU would prefer to help Greece out for the sake of the value of the euro, consistent bailouts without repercussions set a bad example of what happens to those who default on their loans. Greece is not the only country struggling with their debt. While Germany, one of Greece’s main creditors, has a lot to lose if Greece exits the Eurozone, they may lose even more in the long run if other European borrowers believe they can avoid repaying their debts as well.
Greece’s future in the Eurozone is still up in the air. With new negotiators, and a precedent of refusing severe austerity measures, negotiation tactics will have to be adjusted. It still remains to be seen if an agreement can be made, or what it could possibly entail.