Categories
EUROPE Money

Greek/Euro Crisis Explained

Greeks rejected a series of proposals from Greece’s lenders on Sunday in a 61%–39% vote, throwing into further chaos the status of negotiations over the funding Greece desperately needs to keep from basically going bankrupt.

Greeks rejected a series of proposals from Greece's lenders on Sunday in a 61%–39% vote, throwing into further chaos the status of negotiations over the funding Greece desperately needs to keep from basically going bankrupt.

Ahead of a June 30 deadline, the International Monetary Fund, the European Commission, and the European Central Bank offered up a set of proposals that Greece would have had to agree to in order to the receive $8.1 billion in loans it needs to stay solvent.

IMF chief Christine Lagarde

European Commission President Jean Claude Junker

Following the global financial crisis of 2008, the three lending bodies — often referred to as the “troika” — have provided Greece with 220 billion euros in loans over the last five years. Most of that, however, has gone towards repaying Greece’s previous loans and public spending.

In response, the government announced that it would put the proposals before the Greek people, calling for a referendum vote — the first since the country abolished the monarchy in 1974.

In response, the government announced that it would put the proposals before the Greek people, calling for a referendum vote — the first since the country abolished the monarchy in 1974.

Milos Bicanski /AFP / Getty Images

The hastily organized vote was framed by supporters as the only way to stay within the eurozone, the 19 countries that use the euro. Opponents, including the Greek government, saw the terms that the troika had set as unacceptable and urged a “No” vote to allow Athens to set better terms at the negotiating table.

Here’s the ballot itself in Greek, which Greek citizens could vote “Yes” or “No” on:

Here's the ballot itself in Greek, which Greek citizens could vote "Yes" or "No" on:

Wikimedia

For those of you who don’t speak Greek, here’s the wording of the ballot, in English:

Should the draft agreement submitted by the EC, ECB, IMF to the eurogroup on June 25, which consists of two parts that make up their full proposal, be accepted? The first document is titled ‘Reforms for the completion of the current programme and beyond’ and the second, ‘Preliminary debt sustainability analysis’

And here’s our translation of that jargon-filled English into actual understandable English

Do you think that the thing the European Union, the European Central Bank, and the International Monetary Fund suggested on June 25 should be a thing that we accept? It’s full of a bunch of things we have to do, like more spending cuts (i.e. austerity) and whatnot in order to get more money in order for us to not be totally broke.

The result is a major win for Greek Prime Minister Alexis Tsipras — leader of the left-wing Syriza coalition — who had campaigned hard for people to reject the proposal.

The result is a major win for Greek Prime Minister Alexis Tsipras — leader of the left-wing Syriza coalition — who had campaigned hard for people to reject the proposal.

Greek Prime Minister’s Office / Via Getty Images

“We ask you to reject it [the proposal] with all the might of your soul, with the greatest margin possible,” Tsipras said on Monday night.

He also said then that he wanted Greece to remain within the eurozone: “The financial cost of the dissolution of the eurozone and the cost of bankruptcy of the European Central Bank is huge — enormous. This is my evaluation.”

The outcome is a victory for Greeks who believed that the banks and lenders had set a set of terms too harsh for Greece to accept. What this means for negotiations over Greece’s fiscal future, however, remains unclear.

The outcome is a victory for Greeks who believed that the banks and lenders had set a set of terms too harsh for Greece to accept. What this means for negotiations over Greece's fiscal future, however, remains unclear.

Odd Andersen / AFP / Getty Images

German Chancellor Angela Merkel previously said that Greece’s counterproposals wouldn’t be debated prior to the referendum’s outcome. Now that Greeks have resoundingly rejected the troika’s proposal, Athens hopes to return to the table with a better position, to increase the amount of debt relief built into the plan and other concessions. But whether negotiations resume at all, as Tsipras’ government hopes, is not set in stone, based on how firmly European leaders insisted the vote was also a referendum on Greece staying within the eurozone. And soon after the vote, German Vice Chancellor Sigmar Gabriel said that in holding the vote Tsipras had “torn down last bridge of compromise.”

Greece has already opted to miss the most recent payment on the $1.8 billion that it owed the IMF as of last Tuesday, and it owes the ECB another 3 billion euros on July 20.

The result is also sure to increase chatter about just what a Greek exit from the euro (or “Grexit”) would mean. (As of now, nobody knows what it would mean for the euro, let alone global markets.)

The result is also sure to increase chatter about just what a Greek exit from the euro (or "Grexit") would mean. (As of now, nobody knows what it would mean for the euro, let alone global markets.)

Milos Bicanski / AFP / Getty Images

This is what The Guardian has predicted would happen, though, and it isn’t pretty:

Overnight, banks would become insolvent, the economy’s productivity would drop precipitously and hyperinflation would explode as the reintroduced drachma devalued overnight. Some suggest social unrest would likely erupt with borders being closed to stop hard currency fleeing. The price of imports would skyrocket.

Political turmoil could follow and the far left and far right – both of which have endorsed the no vote – would feel strengthened. Leftwingers in Syriza, trade unions and workers’ associations, backed by the anti-capitalist Antarsya, have long advocated a split from the EU and the write-off of Greece’s monumental debt.

2 replies on “Greek/Euro Crisis Explained”

Greater integration? Hell no! If Mexico, Argentina and Venezuela and the rest rocked up and asked the USA to be part of a new country called Pan America would you say yes? There would be no borders and every one would be an equal citizen of every country. The poor people in the Panamerican states of USA and Canada wouldn’t be able to get any benefits or better government services, because the Venezuelans would all move and claim the same. The poor, populous states like Brazil would elect representatives who would ensure that everyone in rich states paid their federal taxes so that they could build new infrastructure and hospitals in Brazil. There’s be new roads and rail so Brazilian logging companies could get richer and so Argentinian cattle barons could ship their meat cheaply and without costly import inspections into the US.

For years, the government of Greece spent money it hadn’t made and knew it couldn’t repay. The people and businesses don’t even want to contribute. Tax evasion was even described by Greek politicians as their national sport. €30,000,000,000 (US$33,083,400,000) of tax revenue goes uncollected every year.
Why would they do this and why did the EU let it continue? Greece knew the EU had let them into the club and had to keep paying out more loans to cover old loans or Greece couldn’t repay. If they didn’t repay, they can’t be allowed to print more Euros.
Eventually, the EU said they could have a boatload more money, but only if they agreed to tighten their belts and stop spending way more money than they were making. However, the people had gotten used to taking handouts from their government and working in jobs funded by public sector overspending and were pissed that the government cut back on its own spending. Even so, the government spent so much money that the banks ran out of money to give out and depositors couldn’t get their funds and pensioners couldn’t have their pensions. This wasn’t due to austerity, it was largesse to the point of collapse.
Still, people wanted more of the good old times when they government spent like money was free. At the next elections, the new PM and his finance minister came to power on an anti-austerity ticket. They certainly weren’t about to capitulate to the lenders. They didn’t even want to negotiate in good faith. They had a deal on the table and the negotiating difference was just pennies on the dollar. There was plenty of time to reach an agreement. Instead, the PM gave their lenders the finger and said that instead of negotiating they’d simply take the deal on the table and let the people vote on it.
The finance minister and PM actively campaigned against accepting the terms and called the lenders Nazis. Days after the deadline on accepting the deal blew by, they held their referendum, which was meaningless because the deal they were voting on was no longer on offer.
60% of the people voted for rejection of the previously offered terms, 40% of the people voted to accept them, not that it mattered anymore. This ratio roughly mirrors the proportion of Greeks that lived off government overspending vs those that lived off handouts. Young people wanted jobs while pensioners just wanted their cheque.
So, what now bitchez?
The EU could give in and just throw them some cash, no strings attached. That would encourage Portugal, Spain and Italy to elect anti-austerity measures and go down the same route. Europe would collapse or break apart. Greek politicians can’t back down, certainly not after a referendum. So the only viable solution is for the EU and Greece to stop negotiating.
However, the Greek banks are insolvent. The government can’t even pay for basic needs. The economy has collapsed. The only solution is for the Greek government to reissue IOU notes (New Drachmas) that could be used to pay taxes (not that any Greeks pay tax). This is a defacto exit from the Eurozone, while remaining within the EU. Of course, these Drachmas would be issued by insolvent banks under the authority of an insolvent government and would be worth about as much as an IOU from a drunk homeless guy. Unless Greece implements even harsher austerity discipline measures than the EU was demanding, these Drachmas will devalue like Zimbabwean dollars.
In short, Greece will collapse. There is almost no limit to how bad it can get for them. However, if we do not allow them to suffer. The other crappy European nations will bleed us like leeches.

Leave a Reply

Your email address will not be published. Required fields are marked *

​​HIGH OCTANE INTERNET CHAOS
More Boobs - Less Politics ​​

And Now... A Few Links From Our Sponsors