When the currency known as the “euro” came into existence in 1999, Greece failed to qualify for membership in the European Union because of its economic condition. Greece was eventually admitted into the alliance after ostensibly agreeing to accept austerity measures in the form of significant public spending reductions. Sixteen years later, after a bailout of the country’s governmental debt, its citizens voted overwhelmingly to reject the latest proposal from its creditors tied to more austerity, leading to widespread celebration. This move might result in Greece reversing its earlier course, leaving the Eurozone and returning to its former currency, the drachma. (See this earlier article by GoodCredit.com describing Greece’s lack of good credit.)
With recent large cash outflows (over € 1 billion just over the previous weekend), the country’s banks and stock market remain closed while ATM withdrawals have been limited to € 60 per day. Greece’s finance minister resigned following the referendum vote and Greece’s default on repayment to the International Monetary Fund (IMF). The Eurozone creditors appear to be taking a tough position on the Greek debt on the theory that compromise with one debtor will lead to compromise with other creditors.
Meanwhile, around the world, the markets in other countries (including the United States) are trying to assess how the situation with Greece will affect them, and to what extent. Many investors have already reduced their exposure to Greek debt and believe any repercussions such as an exit by the country from the Eurozone have been fully factored in the prices of any securities which might be affected. Conversely, others believe that whatever happens in Greece could contribute to volatility in other nations’ markets from uncertainty over which country or countries would be next to suffer the same fate.
The bottom line is that if the Greeks don’t cut their spending and taxation like they should have been doing since they entered the Eurozone their situation will only get worse and it will be party over, oops out of time.