Saturday, Greek officials walked away from debt negotiations and announced a referendum vote for July, 5th on the proposed debt repayment plan. In the interim week, Athens imposed strict capital controls. Tuesday, Greece is due to pay the IMF 1.6 billion euro, however default here seems likely. The Greek appear to be divided on accepting the EU’s bailout plan: with it will come a salvaged economy, albeit with increased taxes and cuts to their much-loved pensions, but without it, Greece could be forced off the euro, and possibly out of the EU itself. Monday, with news of shuttered Greek banks, markets across the world opened in the red. Investors in US markets were only slightly cooled by Greek worry, with the Nasdaq, Dow, and S&P 500 all opening about .7 percent down. European indices faced losses greater than the US, (2-3 percent declines) but overall, no major economic turmoil. In this time of economic worry, investors are moving away from volatile equity markets and parking assets in stable US, UK, and German bonds, all of which have seen an increase in price, and inversely proportional drop in interest rates. A significant concern of European leaders however, is limiting the impact of Greece’s default and possible exit. Portugal, Spain, and Italy, are all debt-laden eurozone nations not dissimilar to Greece; EU officials must watch these countries and prevent contagion by Greece. Using Monday as a litmus test for the world’s reaction to Greek’s potential collapse, losses so far seem limited to the ailing nation itself. Nevertheless, a week of capital controls, and the referendum vote on the 5th, may send further shockwaves across the world.
By Michelle Seiler-Tucker, Special for USDR
Why did this happen? For starters, the Greek government swung from the far right, to the far left, in just a few years. The right leaning parties accepted the first bailouts in 2010-2012, and now the far left, anti-austerity Syriza party is firmly against harsh repayment plans. This is why, even though Greeks knew about impending deadlines for years, they still let the 11th hour tick by without a solution. With closed banks, and severely limited ATM usage, Greece is in for a rough week – many citizens have already resorted to bartering with neighbors for goods and food. At this point, there is no great outcome, not even a good one, all we can hope is that Greece’s economic trouble stays contained, and doesn’t grow into a multi-country meltdown. –