So, if you read the Skimm, go on Facebook or Google, or even crack open a newspaper every once and a while, you probably have seen the word “Greece” used frequently. They’ve been having some issues with this important thing called money, because they happen to be about 320 billion euros in debt and they can’t manage to figure out a way to pay back their lenders. This is kind of a big deal because if they don’t figure something out soon, they might have to make a “Grexit” and leave the Eurozone (hint: this means the eurozone and Greece will be in serious economic turmoil). But before I give a quick run-down on why this actually matters, there are some terms one need to know:
IMF: International Monetary Fund, a.k.a the people who try and monitor and foster the cooperation of monetary value, international trade, and economic growth between 188 countries.
EU: European Union, a.k.a any country that still uses the Euro.. and the United Kingdom even though they still use the pound and have no intention of ever using the Euro.
Default: what happens when a person, business, or country cannot pay back their loan in time.This essentially means that the borrower— in this case, Greece— is in big trouble with the people who loaned them the money and repercussions will be taken.
ECB: European Central Bank, a.k.a the people who control and monitor the Euro… and who are pretty upset with Greece not being able to pay back their estimated 320 billion Euro debt.
A Brief History:
Greece’s debt actually began in 2010, and since then, most foreign investors have sold their bonds and holdings so they are no longer influenced by what happens in Greece’s problems. After the crash of the stock market in 2008, Greece announced that it had been misunderstanding its deficit figures for years.
This commissioned the IMF’s first two bailouts to Greece, leaving them with 240 billion euro — about $264 billion— to pay back. However, not only did Greece have to pay back this money, but it also came with harsh conditions (think steep tax hikes and unhappy Grecians).
What most people don’t understand is that this money was intended to go towards paying back international loans and investors, not stabilizing Greece’s rocky economy. This left Greece with scheduled payments it had to make in order to stay in the Eurozone, and on June 24th and in early July, Greece was unable to pay back each loan. This meant an angry IMF and Greece getting closer to being forced out the Eurzone since they were unable to pay back their loans.
Why Should I care?
Now that the basics are given, one might be asking “why should I care about this? I don’t live in Greece and it probably won’t influence my vacation in Santorini.” Well, I hate to say this, but if Greece exits the Eurozone (a.k.a the 19 nations that fall under the euro) then not only will Greece be turmoil, but the international economy will need a bounce back as well.
Since no country has even actually left the Euro currency zone, this means a battlefield of legal arrangements that has never been crossed. Additionally, most European political leaders believe that a unified Eurozone is imperative to a sound, structural EU. While most economists say that a “Grexit” isn’t likely, they also contend that the Eurozone might be better off without Greece’s constant need for help from their foreign neighbors.
If Greece is forced to make a “Grexit” from the Eurozone, then taxes will increase and they will have to create their own currency. Even creating one’s own currency is expensive, and it remains to be seen whether or not Greece can handle this new financial burden.
So what’s the latest?
Greece is asking for their third bailout in five years, and if Greece and its European creditors cannot reach a payment agreement, then Greece will have to leave the Eurzone. Their initial meetings ended without an agreement, mainly because Greece’s demands were unreasonable because of their lack of money.
Greece’s new Prime Minister, Alexis Tsipiras, was elected because he claimed he had a solution to the country’s debt. This included not raising taxes or making any Grecians angry, but European investors said that Greece would be unable to pay back the IMF without a little bit of a tax hike.
As of Monday, July 13th, it has been announced that Greece and its European creditors reached an agreement in Brussels. Tsipiras will also have trouble selling this agreement back in Athens since it entailed austerity measures he once said he wouldn’t agree to. However, this agreement does not mean Greece will receive its third bailout. On the bright side, it means that creditors can start discussing a new package to help Greece out and stabilize its economy.
At this time, only time will tell if we have another Greek tragedy on our hands.
