English
The Greece economy struck rock bottom after the Wall Street imploded in 2008. In order to recover the failing European state, the ‘trioka’ of IMF, ECB and European Commission provided a total of $146 billion to Greece on conditions of strict austerity. Far from growing stable, the Greek economy sank further, forcing the IMF to buy out two successive bailouts for the country. But the grants provided mostly went into waiving international loans rather than penetrating into the Greek economy, which started shrinking quarter after quarter. In January, 2015, the left-wing Syriza came to power, promising to bring the country out of its financial misery. Prime Minister Alexis Tsipras, opposing every austerity measure, was successful in negotiating with the ‘trioka’ and persuaded them to provide bailout extension for four months. However, the four month period expired on June 30, with Greece in no position to clear off its debts. (READ: Greece crisis may trigger outflows from India: Fin Secy)
Why is Greece going for referendum?
The European Central Bank (ECB) said on Sunday it would not expand the emergency loan programme that has been propping up in the Greek banks. Greece’s bailout extension has expired on June 30. The country would vote on July 5 to decide whether to remain in the Eurozone or adopt a new currency and move out.
How has the situation arrived?
Greece was one of the counties in the Eurozone, which was at the epicentre of the 2008 financial depression. By 2010 as the world economy was reeling, Greece financial conditions continued to grow worse. It finally reached the point where the Greek government in 2010 declared that the country is moving towards bankruptcy. In a bid to improve Greece’s failing economy, the IMF(International Monetary Fund) and the ECB provided two back to back emergency loans amounting 240 billion pounds.
Athens economy grew worse…
It was expected that the huge loan granted to Greece would help the country to stabilise its finances and quell market fears. However, the economy couldn’t improve, pushing Greece into further debts. Many economists blame the austerity measures imposed on Greece were a major cause of its failure. Greek financial experts believe austerity had created ‘humanitarian crisis’, as unemployment grew to 25%. But contradicting them, the international creditors blame Athens for poorly managing its economy.
Are there chances whether Greece would remain within the Eurozone?
On June 28 in an emergency meeting of Eurozone financial ministers, no concrete decision could be taken. Germany said Greece will remain part of the Eurozone as of now. However, Berlin had expressed that the cost of keeping Greece in could not be ignored altogether. But taking a cautionary approach, Germany also pointed out, if ECB, which has capped emergency loans of 89 billion pounds, shut the tap completely, Greek banks would collapse. It would not only make Grexit inevitable but cause adverse impact on the European economy.
Would Greece most likely make a ‘Grexit’?
Greece Prime Minister Alexis Tsipras has blamed the ‘troika’ of the ECB, IMF and European Commission of being unfair to Greece. He has sought the approval of the Greek Parliament for a public referendum on July 5 on the debt negotiations. It seems highly unlikely that another bailout extension would be granted to Greece, as the current bailout package has been the third one since 2010. If the bailout stands rejected, then most probably Greece would vote ‘NO’ on July 5. Combining all their debts, Greece currently owes 320 billion pound to the IMF, ECB, European Commission and the international market. For a country like USA this amount can be paid back. But for Greece, it is highly unlikely. Especially, when the left wing, Syriza is in power which had opposed any form of austerity measure.
Constraints imposed on Greek citizens
Greece has freeze the outflow of cash completely preparing to move out of the Eurozone. All Greek banks are shut until July 7. An individual could only withdraw 60 pounds(Rs 4,250) per day. Greece’s intent is to prevent people from stashing cash at their homes. It wants to stop the cash flow abroad, converted to different currency.
Impact on India
If Greece votes itself out of the Eurozone, it might impact India indirectly in the short run. Finance secretary, Rajiv Mehrishi conceded on Monday that it might lead to increase in interest rates in Europe which could trigger investment outflows from India. He, however, downplayed any long term impact on equity, debts or currency markets, stating that he expects a bailout extension been granted to Greece in a day or two. The Indian stock market is reportedly nervous following the expiry of Greece’s bailout program. The currency of all emerging markets have worsened against the US dollar. According to Assocham secretary general D S Rawat, “For some time, the markets would stay in a state of flux and the rupee may lose ground if the situation in Greece worsens”. RBI Governer, Raghuram Rajan has hinted that the Indian economy would be able to withstand any fallout of the Greek crisis. As of June 19, the foreign exchange reserves stood at a healthy figure of USD 355.46 billion. The big positive for India is the progressive growth of the domestic economy which is comparatively at a better position compared to other EMs (emerging markets).
What if, Grexit (Greece’s exit from Eurozone) does indeed happen?
Financial experts believe that in case of a Grexit, Greece might have to take ‘pain-staking’ measures to construct its own currency and economic market without the aid of the Eurozone. It is also believed that once Greece makes the exit from the Eurozone, Beijing and Moscow might offer absolute help to reconstruct its ailing economy. If Athens drift towards Moscow, it will unlock a whole new set of geo-political complications and challenges for the West.
For breaking news and live news updates, like us on Facebook or follow us on Twitter and Instagram. Read more on Latest Business News on India.com.
