Greece continues to be the troubled child of the EU. The country’s prime minister Alexis Tsipras has accused the International Monetary Fund (IMF) of bearing “criminal responsibility” for the crumbling Greek economy since its first bailout, and its finance minister Yanis Varoufakis has remained adamant that debt restructuring is the only solution to Greece’s problems.
Greece is due to pay about €1.5bn (£1.1bn) to the IMF by the end of this month, but its current bailout programme totals about €7.2bn (£5.2bn). As tensions become tighter and markets become more anxious, a Greek exit from the EU has become increasingly likely. Here are five things you need to know before the eurozone finance ministers get together on Thursday to negotiate the country’s future.
1. If Greece defaults on its debt, does this mean it will have to leave the EU?
Not necessarily – Greece could default on its debt payments but still remain in the EU. The EU would rather hold onto Greece despite a default as it does not want to set the precedent for other member nations leaving the union.
2. What are the chances of a jubilee?
A ‘jubilee’ occurs when all debts are reset – the financial equivalent of beginning a game all over again. This is basically what Mr Tsipras has been pushing for under the guise of “debt restructuring” since he began his campaign to become prime minister of Greece, and what Greek voters chose in their most recent elections. But while the Greeks may think this is the ideal scenario they are unlikely to find any allies in Europe, except perhaps Portugal and Italy who would likely begin demands for a similar deal should Greece get its own way.
3. Isn’t this unfair to other nations who would not have outstanding debts wiped clean?
Many would argue that, yes, that is not fair to other nations. This is partially why the EU has so far refused to do so despite ongoing demands from Syriza, Greece’s left-wing party ran by Mr Tsipras. This may make other nations demand the same, which could begin a domino effect of irresponsible national finances.
4. What would an exit look like for the average Greek citizen?
Despite ongoing complaints about austerity from Europe, there should be no cause for celebration should Greece leave the EU. One of the biggest things that Greeks would notice straight away is the change from using the Euro as currency back to the Greek drachma. Economists forecast that the Greek currency would have a high risk rating and low valuation, so inflation in the country would likely ensue. Capital controls put in place to stem the loss of liquidity from Greece would also be apparent, such as cash machine withdrawal limits, foreign transfer restrictions, and physical currency limits, such as at border controls. These measures would aim to prevent a large-scale run on banks, giving Greek authorities a bit more time to figure out what to do.
5. What impact could this have on the UK?
Economists have warned that British savers could expect pensions and Isas to lose about 10 per cent of their value if Greece were to leave the EU. The ongoing threat of a Greek meltdown has already caused uncertainty in the markets, with the Ftse 100 falling by roughly 6 per cent in the two months since it reached its record high.
Bonus question: What happens to any investments that I have in Greece if it defaults or leaves the EU?
Better luck next time.
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