GREECE DEBT CRISIS: WHAT HAPPENS NEXT?
European leaders are facing one of the worst moments in the history of the euro – one that could sink the very existence of the European Union and the euro as we know it. Greece’s long-simmering economic crisis has finally abrupt into a grave political and financial meltdown.
Update: What’s the Latest?
Amid one of the worst crises in the EU's history, Eurozone leaders have agreed to offer Greece a third bailout, after grueling talks in Brussels. The head of the European Commission said the risk of Greece leaving the eurozone had been averted.
Greek Prime Minister Alexis Tsipras said that after a "tough battle", Greece had secured debt restructuring and a "growth package".
The bailout is conditional on Greece passing agreed reforms by Wednesday.
These include measures to streamline pensions, raise tax revenue and liberalize the labor market. Conditions under Greece's tentative bailout are tough including tax reforms, pension cuts, budget cuts as well as surrendering financial authority to European supervisors. And there's no telling what the reaction will be from the Greeks themselves who just last week voted no to austerity.
An EU statement spoke of up to €86bn (£61bn) of financing for Greece over three years.
Greek Prime Minister Alexis Tsipras is battling to convince MPs within his government to back a third bailout offered by eurozone leaders. Four pieces of legislation have been submitted to parliament, including pension and VAT reforms. They must be passed by the end of Wednesday. But Defense Minister Panos Kammenos, a junior coalition partner, has said he will provide only limited backing.
If the deal fails, Greece could be forced to leave the euro.
The International Monetary Fund (IMF) announced early on Tuesday that Greece had gone further into arrears by missing a debt repayment for the second consecutive month. The IMF has said the country needs massively more debt relief than the eurozone has admitted.
What’s was Happening?
Greece and its place in the European Union has fallen deeper into uncertainty.
On June 30, Greece missed its deadline to repay the estimated 1.7 billion euros to the International Monetary Fund. On July 3, the country was officially declared in default, making it the first developed country to default to the IMF.
Earlier this month, Greek citizens voted to reject Europe’s deal for more austerity measures in exchange for rescue loans.
Greece delivered a daunting rebuff to Europe’s leaders on Sunday as more than 60 percent of Greek citizens decisively voted “no” to budget-restricting austerity measures put forth by the country’s creditors. This historic vote could redefine Greece’s place in Europe and rattle the continent’s financial stability. The vote represents a resounding victory for Greece’s Syriza party – whose political platform stands in vehement opposition to such restrictions.
What does a “no” vote mean?
If Greek citizens vote ‘No,’ the consequences will mean near-certain departure from the euro and potentially the European Union itself. The EU has never had a country exit the euro before, so there is no current procedure or system set in place for a euro-departure.
A ‘No’ vote would mean that there will be no more ECB loans or bailout money coming in, and as emergency funds dry up, Greece may face a banking collapse. Greece would need to bring back its old currency, the drachma, and in doing so, will face years of further financial struggle. Greece would immediately suffer devaluation, inflation, and default – the new currency would plummet, inflation would climb to double digits, any business that borrowed euros would default, and imported essentials like food and gas might need to be rationed. The government would need to balance the budget fast.
A ‘Grexit’ could also alarm financial markets across the Eurozone, compelling others to depart from the euro. A Greek default along with abandoning the euro brings fear of a contagion effect – a ripple effect triggering others to exit the currency, and this could be the end of the EU as we know it.
So why did Greece vote ‘no’?
Hope for future economic growth. After a few years, Greece has the potential to thrust its economy again. The country would be left with a cheaper drachma, which makes exports more competitive and its tourism more attractive. The economy would start to recover, and fast.
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