CASH-STRAPPED: Where next for our Greek cousins?
Published 29/06/2015 | 02:30
I'm getting a little worried about this Greek crisis. I had assumed that Angela and Francois would sort things out but it seems to be getting worse. Did I miss something?
You and the rest of the world. Even last week, most politicians and investors were betting on the usual last-minute agreement so our leaders could head into the summer without worry. But things are not going according to plan.
Even I know that closing your banks and stopping people from sending cash overseas is bad news. How did it come to this?
Greek prime minister Alexis Tsipras stunned almost everybody with his announcement in the early hours of Saturday that he would hold a referendum. That decision may yet lead to a long-term solution to the crisis but in the short-term it means that Greece will definitely miss a Tuesday deadline to repay money it owes to the IMF. This, in turn promoted the European Central Bank to decide that it would not give any new funds to Greek banks.
I don't understand how the ECB could turn off the taps. Is that not very undemocratic?
They have not turned off the taps but also they have not decided to shovel over more money. The problem is that without any new funds from the ECB, Greek banks are unlikely to be able to honour the deposit withdrawals that are expected in the run-up to Sunday's referendum. There has been a run on the banks for months and it got much worse in recent days, with ATMs drying up over the weekend.
Bad news for holiday makers!
Indeed. Anybody going to Greece should bring a large wad of cash with them. Anybody who is there could be in for a trying few days.
So what will the Greeks be voting on?
Greece's referendum question will read as follows: "Greek people are hereby asked to decide whether they accept a draft agreement document submitted by the EC, ECB, and IMF at the Eurogroup meeting held on June 25 and which consists of two documents."
It all sounds a bit complicated, but then Irish votes on Europe are as well.
Too right! The documents have sections on ''parametric budgetary measures'' and ''unified wage grid reform.'' If that's too easy, how about a discussion on the methodological advantages of using ''gross annual financing needs'' to assess Greece's debt burden, rather than the more traditional debt-to-GDP ratio? Some people even say the referendum is illegal.
Will we get a conclusive answer?
Only one thing is for sure: this story is going to run and run. Even the most benign scenario will take months to play out. A default followed by ejection from the eurozone could take months and cause endless grief.
That's very sad for the Greeks but now that Herr Noonan and Chancellor Kenny have aligned themselves to Germany, Ireland looks safe?
We're certainly in a better position than a few years ago but it is foolish to believe that Ireland, or any other European country, is insulated from this. Greece may account for less than 2pc of the eurozone economy but ejection would make it clear that other countries could also go. People are already asking questions about Portugal. Money would inevitably start draining from banks in any country where there was a question mark hanging over euro membership.
So it's a question of bracing yourself?
Yes, complacency in government circles is more than a little dangerous and smacks of the denials that followed the liquidity crisis back in 2007. We are living in dangerous times. The fact that the crisis was postponed last time, means very little. After all, if a simple bank like Lehman Brothers could bring down the financial system, imagine what a country can do to a fragile system drowning in debt after years of cheap money.