After saying no, what does it mean for Greece. For those of us out here just living our lives, we most likely have no idea of the hardships the Greek people are currently experiencing. The Greek situation is a case of irresponsible lending and irresponsible borrowing. The leaders of the country have landed the country into a self-dug pit, and everyone is bearing the brunt of it. In Greece at the moment, both the employed and unemployed have only one thing on their minds, “what now?”
The nays had it at the recently concluded bailout referendum which contained very strict austerity measured. The Greek people have therefore spurned tax rises, spending cuts and pension labour reforms as a direct consequence of their vote. In light of this development, the finance minister who had said he was going to resign if the citizens accepted the bailout, still went ahead to resign after the people voted No. Giving his reason to be the unwillingness of the Eurozone members to work with him.
The Greek depression dates back to 2009. By 2012, Greece had the largest sovereign debt default in history. Owing to this, Greece became the first developed country to fail to make an IMF loan repayment. Currently, Greece’s debts stand at €323bn.
The 1999 introduction of the euro as the common currency reduced trade costs among the Eurozone countries, increasing overall trade volume and increased labour costs in Greece. This led to trade deficits. In order to reduce the effect of this deficit, Greece thus had to begin borrowing (foreign financial surplus). Subsequently, they had to borrow more to pay off their previous debts. Their debt level thus rapidly grew above the maximum sustainable level which for Greece is 120% as stated by IMF economists.
Greece’s problems have been compounded by the high rate of tax evasion in the country. As each year, the collected revenue is well below half of the estimated sum. Transparency International thus ranked Greece as the most corrupt country in the EU. Tax evaders mostly store this money in Swiss banks. A tax treaty to address the issue is thus under way between the Greek and Swiss government.
In 2010, it was found out that Greece had tampered with its statistics and had been hiding the true value of its debts through the help of a bank. The credit was disguised as swaps, so they did not get registered as debts. This is a legal way of circumventing the Maastricht rules.
As a result of its debt crisis, 111,000 Greek companies have gone bankrupt. The unemployment rate rose to 23.1% while youth unemployment rose to 54.9% in 2014. The Greek GDP fell to €323bn. More than 20,000 Greeks have been rendered homeless.
One solution to the end its crisis seems to be an exit from the Eurozone and a launch of a national currency, the Drachma. This was suggested by Paul Krugman as the devaluation of the currency may help Greece boost export and pay down its debts. Currency devaluation has worked for countries such as Iceland and Canada. The consequences of Greece’s exit from the Eurozone can be very severe and global.
With the appointment of a new finance minister, an agreement is still yet to be reached as to the way forward.