So the Greek tragedy rolls on; expect considerable volatility this week, certainly on European markets and for the Euro currency following the Greek government’s decision to announce a bank holiday for more than a week.
The country’s stock-market was suspended and automated teller machine withdrawals across Greece were capped at €60 (US $66) as banks began to run out of money. Many Greeks have already begun resorting to the barter system as they are simply unable to obtain more cash.
Greece faces a debt default within 48 hours after the government made clear it will not, indeed cannot, repay a €1.5 billion loan to the International Monetary Fund that expires today.
What Syriza Hath Wrought
In a sense, the tragedy here is the success of the leftist Syriza party in being elected to office in the first place, supposedly on a mandate to end austerity just as the Greek economy, by many measures, was turning the corner.
At the end of 2014, Alexis Tsipras’ new government took over one of the fastest growing economies in the Eurozone, with an expected budget surplus this year and then drove it directly into a brick wall. Tax receipts collapsed, the surplus turned into a budget deficit within weeks and now the country is on the verge of default.
Not that non-payment of IMF loans automatically puts a country into default, but failure to pay next month’s much larger European Central Bank re-payments will. In addition, Greece’s banks are teetering on the edge of collapse due to a lack of liquidity.
According to the Telegraph Greeks have pulled €30 billion from the financial system since Syriza was elected five months ago, with many hoarding cash in their homes or sending it overseas. Syriza is playing a dangerous game of chicken with their fellow European partners and the IMF, yet both the US and France are desperate for Greece to remain within the Eurozone and for a compromise to be found.
A Referendum on What, Exactly?
The latest move from Athens is to announce a referendum for the Greek people to decide, but at the moment the two sides — the EU and Syria — can’t even agree what the proposal is. What Syriza intends to put up to the vote is unclear. In such an emotionally charged atmosphere even a clear set of proposals should be debated for weeks before being put to a vote, yet the government is saying it will go to the people as early as this coming weekend.
However poorly the Greek government is playing it’s cards our expectation is still that a last minute fudge will be found but it is looking increasingly finely balanced and we should not under estimate the strength of feeling that is running in Athens in spite of the consequences if their game of brinkmanship fails.