Greece: the eurozone’s problem child, and then some.
Long has the embattled country struggled with its finances, among other things — growth, employment, poverty — but this week may finally be the proverbial tipping point. As you’re most likely already aware, the developed nation is running out of cash — and assistance of cash — at a rapid pace that could end up forcing it out of the 19-member currency bloc, otherwise known as the euro area.
On Tuesday, Greece has a lofty payment of about €1.6 billion ($1.8 billion) to make to the International Monetary Fund, or else it edges closer towards the risk of default. The severity of it all was thoroughly underscored this weekend, when Prime Minister Alexis Tsipras announced that local banks were going to be closed Monday — until July 7 — and that the government was imposing draconian capital controls; a paltry maximum of €60 ($66) can be withdrawn from an account in one day.
It doesn’t stop there. To provide a more comprehensible message, I’ve culled three charts below to illustrate the utter gravitas of the situation that the country is currently experiencing.
With so much uncertainty, residents of Greece are cautiously depositing less money into their local banks at levels not seen in about a decade.
As you can see, Greek banks are heavily — and alarmingly — dependent on the European Central Bank’s financial assistance to help them stay afloat. If that aid stops, the banks will ultimately crumble.
Probably the most important chart of the three, this graphic from the Wall Street Journal outlines Greece’s timetable for how much it owes and to which creditors. It goes even further to provide the exact due date and a brief description of the debt.
Now, you may be asking yourself, “Who cares... What does any of this have to do with me?” Good question, my girlfriend pondered the same thing last night when I tried explaining it to her. The short answer is, essentially nothing. Unless you have some sort of risky investment ties to Greece, or currently live there, this potentially calamitous situation will not crimp your week moving forward.
But that’s not the point. Just because this crisis isn’t a domestic one does not by any means suggest it’s trivial. No, you have to look at it holistically to fully understand the significance. The idea that a developed nation could conceivably exit an established currency union by force, due to its own financial woes and new-government stubbornness, is deeply unsettling.
It also isn’t an instance that happens very often. In terms of a precedent, no other comparable countries with an open economy has ever dropped out of a shared currency and set up its own version of a new one, according to the New York Times.
“There is no modern parallel,” said Michael P. Dooley, professor of economics at University of California, Santa Cruz. “That’s one of the reasons why there is so much hesitation to do it; no one really knows what will happen.”
(What the Global X FTSE Greece 20 ETF (GREK), National Bank of Greece (NBG) and VIX looked like at the time of writing.)