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For several months now, the European Union has been on a knife’s edge over the substantial debt that Greece has amassed. With national debt currently standing at around €325 billion, a large portion of these is owed to European Countries and Institutions, approximately €220 billion.
As with any credit, when Greece accepted the bailouts (in 2010 and 2012 respectively) they agreed repayment terms. One of these repayments was due on 30th June 2015 for the tune of €1.6 billion to the IMF. This payment was not met, and surprisingly Greece actually requested a third bailout to the sum of €29 billion which was promptly rejected.
As Greece missed it’s payment to the IMF it has result in no further funds being made available to it from the organisation. Even more important is another payment that is due on 20th July to the ECB for €3.5 Billion. A miss payment on this would also result in funds being frozen, funds which Greece currently relies on for liquidity.
If the creditors and Greece cannot come to an agreement on the debt crisis it could result in the largest sovereign bankruptcy in history with billions of Euros being lost. Furthermore it could push Greece to leave the EU. On 5th July Greek citizens will have a referendum to either accept or reject new, tougher austerity measures. The outcome of the referendum will likely determine the future of Greece as an EU state.
The Greek economy accounts for roughly 2% of the EU financial system. Large established markets such as France, Germany and the UK will be more than capable of weathering the storm of a Greek default. The main concern is the weaker EU economies. Portugal, Spain and Italy are both heavily in debt and the potential fallout from a default could destabilise their markets resulting in further EU states defaulting. The potential domino effect that Greece may cause could also dissolve the Euro as states seek the protection of a more controllable domestic currency, less sensitive to foreign influence.
Right now the Eurozone lies in wait to hear the decision of the Greek people as to their future in the EU. Whatever happens to Greece the EU is sure to have a testing time ahead, it will rely upon Germany and France to maintain capital market confidence. As to Greece’s debt which is due for multiple repayments throughout 2015, it may be a case of damage limitation for its creditors who seek to reclaim some of the bailout funds.
Whether Greece chooses to leave the EU or if it is forced out, it would mean a switch to either a new, or the old Drachma currency. A currency switch would cause chaos in the short term. Greek savers would see a dramatic drop in the value of their Euros and many businesses would struggle to adapt to new currency pricing. In the long term a new currency might actually be beneficial to Greece. Its main industries, currently shipping and tourism, would become far more attractive to outsiders due to the drop in Greek currency value. After an initial induction period the Greek markets would stabilise and foreign investors would be able to assess the true value of the new currency, encouraging new investment in an emerging market.
Thankfully the UK is in a relatively strong position compared to some other EU states, partly down to its separate currency and the strength of the Pound Sterling. A Greek exit from the EU would likely weaken the Euro. This may seem good for British holiday makers looking for better exchange rates but ultimately it would adversely affect the value of the pound against other foreign currency.
The EU is the UK’s majority trading partner and should the Eurozone continue to face difficulties the UK would have to offset some of its trading to stronger, more capable markets. In the process of this development it would undoubtedly cause unrest in the UK economy, particularly for those businesses with operations in Europe.
Whilst most of Europe sits around and watches as Greece unravels, Thom Feeney, a York born London shoe maker is trying to change the world. On 28th June Thom set up a simple crowd funder project with the aim of helping ordinary Greek citizens. His reasoning, in his own words “All this dithering over Greece is getting boring. European ministers flexing their muscles and posturing over whether they can help the Greek people of not. Why don't we the people just sort it instead?”. In just a few days the fund has received €743,188 of its €1.6 billion goal. It’s even rumoured that Greek Prime Minister, Mr Tsipras, wants to meet with Thom regarding his goal.