Since becoming a sovereign state, Greece has spent half of its existence in default, and even holds the record for the greatest duration spent in default by a government. Following the Greek legislative elections in January, the world has watched as the newly elected left-wing Syriza Party attempts to renegotiate the country’s debt with the
Since becoming a sovereign state, Greece has spent half of its existence in default, and even holds the record for the greatest duration spent in default by a government. Following the Greek legislative elections in January, the world has watched as the newly elected left-wing Syriza Party attempts to renegotiate the country’s debt with the European Commission, the European Central Bank, and the International Monetary Fund (collectively known as the Troika).
At the end of June, the Greek government had a payment of €1.5 billion (£1 billion; $1.7 billion) to the IMF but failed to do so, becoming the first advanced economy to default on a loan from the IMF. The combination of Greece’s failing economy and its inability to make its payment to the IMF inevitably entailed the Greek government to adopted capital controls on June 29th in an effort to prevent its domestic banking system from collapsing. Although citizens are still able to use online banking in order to pay their bills, these capital controls restrict individuals from making physical withdrawals over €60 (£42; $66), therefore preventing domestic capital from being transferred to foreign bank accounts.
The Greek debt crisis is widely viewed as the biggest threat the Eurozone has ever encountered. Eurozone leaders share a common concern that Greece could potentially serve as an example for other debt-ridden Eurozone countries facing similar problems if it were to successfully evade its debt payments. These concerns not only involve market reactions but anti-euro movements as well.
In an effort to counter the possibility of Greek exit from the Euro (Grexit), Eurozone leaders devised a deal for Greece to stay in the Euro, which includes an increase in Greek austerity in order to pay off its debt. Greek Prime Minster Alexis Tsipras could have accepted this proposal and begun yet another phase of unpopular austerity measures, such as decreasing salaries, cutting pensions, and raising taxes under the hope that, unlike the last several proposals, this agreement would eventually lead to progress in Greeks faltering economy. But with Greek unemployment already at the record high of 25%, austerity would increase the likelihood that hardworking individuals would experience severe financial strain, and could potentially cause the economy to collapse even further. Another important factor is what typically follows during times of severe economic instability: civil unrest, commonly in the form of disruptive protests and riots.
So instead, on June 26th, Tsipras called for a bailout referendum, inviting the people of Greece to vote on July 5th for or against the deal presented to them by the Troika. Although the average Greek citizen, much like the average citizen in any given country, is neither a political economist nor an expert in international finance, Tsipras saw the referendum as a way to bypass an unfavourable deal and simultaneously counter the possibility of mass civil unrest by bringing the citizens of Greece into the decision making process. Earning the hashtag ‘Greferendum’ online, the world watched in anticipation of the outcome.
Tsipras argued that a ‘no’ vote would represent a rejection of new austerity measures and could help to strengthen Greek’s future negotiation position. Advocates of the ‘yes’ vote, on the other hand, interpret the referendum as a decision on Greece remaining in the Eurozone, and perhaps even in the European Union.
On July 5th the results were in, with a 62% turn out Greece had voted no, 61% to 39%. The referendum was hailed by the Syriza Party as “a victory of democracy over economic terrorism.” This however presented the European Union with a enormous predicament, as it made the potential of Greece’s withdrawal from the Eurozone even more possible.
On July 13th, after a reported 17 hours of marathon talks, leaders from the 19 countries in the Eurozone unanimously reached an agreement on a three-year bailout plan for Greece. This bailout plan, which the Greek government voted into effect on July 15th, proposes to allocate approximately €84 billion (£60 billion; $95 billion) over a three-year period to Greece’s economy.
However, this deal has not been widely celebrated by the people of Greece, and it comes at a hefty cost for the Syriza Party, which initially pledged to resist new austerity measures when negotiating Greek’s debt. Not only does this deal generate a new round of austerity measures, such as pension reforms, spending cuts, and tax increases but it defies the voice of the Greek people who, just over a week ago, voted ‘no’, sending a clear message that they opposed the introduction of new austerity measures. In fact, this deal appears to be worse than the initial plan that was rejected by the referendum. This a is humiliating outcome for the Greek people. Tsipras decision to accept this deal has attracted criticism on social media with the world-wide trending hash tag ‘thisisacoup’. It seems as though this hasn’t been a victory for democracy after all.