Well,
the Greek voters were asked, once again, whether they would accept additional
austerity measures that were demanded by their creditors, including the
European Central Bank, the International Monetary Fund and the European Commission. And once again they voted—this time overwhelmingly (61.31% to
38.69%)—to hunker down and move the country to
the brink of a Grexit from the euro currency.
Their
choice may not have been hard to make.
Virtually all of the $264 billion that has been loaned to the Greek
government have actually been paid to the European banks who unwisely loaded up
on Greek debt before 2009—and the loans and extensions, to them
through Greece, has kept the European banking system solvent during the
crisis. Virtually none of that money has
gone back into the ailing Greek economy.
Over
the past three years, the Greek government, following many of the demanded
austerity measures, has actually reached the point of budget surplus, aside, of
course, from the debt repayments. The
cost: a skyrocketing unemployment rate that has reached 25.6%, including 60% of
the nation’s young workers, and a steep recession
which economists seem to agree would only get steeper if the country accepts
the austerity demands. The Greek economy
has shrunk by 25% over the last five years.
But
the hardship continues. Anticipating a
shift from euros to drachma, Greek citizens have staged the mother of all bank
runs, trying to get as many euros out of the system as they could before they
were exchanged for lesser-value drachmas.
The government limited the amount of their own money that citizens could
withdraw to approximately $67 a day, and has now shut down the Greek banking
system at least through end of day Tuesday.
Reopening the banks could be problematic, since they don’t hold nearly as many euros as
depositors have put into them.
Some
are betting that the European Central Bank will provide guarantees and
financial support to keep the banks from collapsing and taking the Greek
economy down with them. But you can
expect Germany to push back hard on this idea.
Will
Greece leave the Eurozone? Nobody knows,
but the vote suggests that the citizens of Greece have had enough of European
(read: German) control over their economy and political decisions; indeed, some
observers saw the extremely hard line at the negotiating table as a ploy to
destroy Greek’s ruling Syriza party by forcing Greek
voters to abandon it. There are sizable
numbers of people in other European countries who feel the same way about
losing control over their own affairs, who are closely watching how the
European Union responds.
The
discussions will be tricky. If the
European Union offers further concessions, then you can expect Spain
(unemployment rate: 23.1%) to ask for less stringent austerity and some space
to get its own economy moving again.
Portugal could be next.
And,
of course, if Greece leaves, and begins to experience economic growth again,
then those citizens in other countries could demand that their leaders also
cast off the layer of oversight and control coming from Brussels.
What
should you watch for? Greece is already
technically in default as of Tuesday, on $1.7 billion in payments. At the end of July, it will own the next
payment, in the amount of just under $4 billion. One compromise possibility is that the
European Union, led by Germany, will reluctantly allow Greece to extend its
payments, and also put together some kind of an aid package for the Greek
economy that would help it become more able to make payments in the
future.
How
does this affect you? Once again, you’re going to see turmoil in the
markets, and a temporary decline in the value of the euro on international
markets. You’ll hear pundits and economists
speculate about the “fate of the Eurozone,” and eventually, one way or another, everything will settle
down again without affecting in any way the underlying value of the stocks you
own. We’ve
all seen this crisis a few times before, and each time the predictions of some
form of doom haven’t come true. This “crisis” is very real to the Greek people, but the world will go on
no matter how it’s resolved.
