By The Prophet of Life
Greece has come to an agreement with the European Union banks that send 96 billion dollars it way to will help it pay its bills into the foreseeable future. The agreement will likely keep Greece in the European Union for the time being, but at what cost?
The Greek Government wanted debt cancellation. It got eased terms with longer grace periods, the full debt must be repaid. Greece must also agree to cut government services, pensions and impose higher taxes. It must sell some of it’s state owned assets like airports and utilities. Greece will also have to allow The European Union to send monitors to make sure that the proceeds from the sales of Greek National Assets are put back into repaying its debt to the European Central Bank (ECB). The Greek Parliament must approve these measures by Wednesday July 15, 2015.
Greece has already lost any opportunity to get more capital from The International Monetary Fund (IMF) due to its default in early July. They can only get technical support, no money. All banks in Greece will remain closed until the deal is approved by Parliament if it is not, banks will likely remain closed for some time longer.
The vote in Greece on July 5th which had The Greek People rejecting the proposed Eurozone bailout plan came as a surprise to everyone except The Greek People. Greek banks shall remain closed most if not all of this week. The IMF, issued a statement indicating that although Greece will still qualify to get technical support, they will not be allowed to access any money as they defaulted on the loan the IMF gave them.
The prime Minister of Greece, Alexis Tsipras, told both the IMF and The ECB, that capital controls in Greece must be lifted, His words are falling on deaf ears as far as the IMF is concerned and The ECB is responding by telling him to come up with a counter proposal which would repay the monies the ECB has lent Greece by the end of the week. Most of the EU nations are anxious about what Greece will do and The Greek People are anxious about how they are going to pay their bills.
Greece has had financial problems for a long time. Greece is a member of the European Union that also participates in the Euro, Greece has never adhered to the debt levels allowed by the European Central Bank. The ECB and IMF have been bailing Greece out for years. The ECB has forced Greece to suffer through austerity measures to help shore up its economy. Austerity measures cut government services, cut pensions and caused massive layoffs in government employees and forced The Greek People to pay more taxes and get less services.
In January, Greece held national elections. The Greek People had a choice between a conservative government that would continue to impose austerity measures and a liberal government that would resist them. The Greek People chose the liberal government. Ever since then, that government has been engaged in a tug of war with the ECB and IMF on repayments of loans made to Greece.
Greece paid back a 450 million Pound Sterling loans in April and another $225 million IMF loans in May. Loan terms required Greece to pay 3% of their Gross National Product (GNP), this year and 4.5% of their GNP next year should they post a budget surplus. When Greece threatened to default on loan repayment in June members of the ECB and IMF proposed a compromise which would allow Greece to pay 1% this year and 2% in 2016. The Greek Government seeking relief from the suffering of its people, offered to pay 0.8% of its GNP this year and 1.5% of its GNP next year.
Greek banks have been closed for more than a week. Greek Prime Minister Alexis Tsipras left the decision on how to proceed up to the Greek People and scheduled a nationwide referendum for July 5, . The referendum asked The People of Greece to decide whether or not to accept the austerity bailout plan proposed by the ECB and the IMF. He advocated for a vote to reject the bailout plan and said he would resign if The Greek People did not vote his way. The People of Greece divided into two camps, those voting for austerity asking Greeks to Vote for Unity (with the EU) group and those voting to break away from the austerity measures imposed by the IMF and ECB. That side also advocates for Greece to ditch The Euro and go back to a sovereign national currency.
Saddled with debts 178% of its GNP to the European central bank and IMF its likely that Greece will take years to repay the debt if ever. If Greece defaults on the payments it owes, it is likely it will be voted out of the European Union by other member nations.
If Greece leaves the EU they may escape repayment of most if not all of the debt but the value of Greek assets will fall, inflation will skyrocket and unemployment will run rampant. Trade partner nations will also be affected as will the nations in the EU with weaker economies as they come under increasing pressure to repay loans they took to shore up their economy. The European nations which put up the money for loans to Greece (primarily France and Germany), will have to take the hit on that money.
Greece could have an economic advantage in trade with a weaker economy. The biggest obstacle to this advantage comes from the fact that when nations joined the EU there was only a plan for converting their independent state currency to Euros not for converting from the Euro to an independent state currency if they were to exit.
Greece is a great nation but it is currently in great economic distress. Their distress will likely spread to other nations and could have ripple effects on the economies all across the globe. As the fall of 2007 showed us, one nations problems affect people everywhere. Wherever you live, Greece’s crisis is your crisis because no matter where you live, it will affect you.
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