A Very Greek Tragedy: What does the Greek financial crisis mean for us in the UK?
In a year which seems to have served up crisis after crisis, and had a number of the world’s leading powers at each other’s throats, it says a lot that the fraught negotiations over setting up a new debt repayment plan between a bankrupt Greece and its European creditors has been one of the biggest stories of the year. Certainly, your Facebook and Twitter feeds may have revealed a surprising number of friends who have turned out to be economic ‘experts’ on the subject.
We’ve been party to six months of high drama and shouting, hysterical headlines in the news as both sides have exchanged insults and angrily blamed one another for the crisis, which has been steadily brewing since January. The inability of Greece and its creditors to stop squabbling like schoolchildren and thrash out a new deal almost makes for good comedy – at least, it would if it wasn’t for the fact that a Greek economic collapse could be the trigger for the collapse of the Euro, the wider European economy, and even the global economy as a result.
For the Greeks themselves, the current chaos and turmoil is representative of a year where things have gone from bad to worse. Following the great financial crash of 2008, Greece has since endured soaring unemployment rates, which now hover around 50%, whilst those who have been lucky enough to hold onto their jobs have watched helplessly as their disposable incomes and living standards have plummeted. The situation has now gotten so bad that caps on ATM withdrawals are now in place to stop a panicky Greek public from draining what little money is left from the country’s broke banks as they desperately try to withdraw their salaries and life savings.
Now that Greece has given a resounding ‘Oxi!’ (that’s no in English) in its recent referendum on whether or not to accept the previous harsh repayment terms offered by its European creditors, the saga’s final curtain call has arrived. A deal between both sides must be made this weekend, which must then be ratified in the local parliaments of Eurozone member states – quite simply, if there is no deal in place by the end of this weekend, a bankrupt Greece would be kicked out of the Euro. In the run-up to this, expect more public bickering between both sides.
However behind the soap opera-esque drama and hot-air, the crisis is a pretty confusing subject for anybody who isn’t a city trader or some kind of financial genius. For all the talk in the papers about the crisis, there are three questions which are on everybody’s lips here in Britain: how did this happen, what does the Greek financial crisis mean for us in the UK, and what does all this mean if I’m going on holiday to Greece soon?
A short background to the Greece crisis: Where did it all go wrong?
Officially, Greece owes a number of European countries and international bodies £171billion, borrowed since the mid-nineties when, in short, it spent more than it earned in tax and trade income. When the 2008 credit crunch hit, Greece suddenly found itself broke and staring up at the mother of all debt mountains.
The country agreed to meet economic reform targets set by the creditors whom it owed money to, in order to unlock debt relief payments in the form of emergency loans and bail-out funds. This financial support was subsequently used to repay the organisations and nations whom it owed money to. However to meet these economic reform targets, Greece made huge cuts to its budget as part of what was, arguably, a savage austerity plan. Predictably, the national economy contracted and entered a deep depression as GDP plummeted, and millions of Greeks found themselves out of work and out of pocket.
The Greek people, out of fear and frustration, voted in the left-wing Syriza party this January, who pledged to cancel the austerity plan imposed upon the country, restore public sector jobs and negotiate a better deal with the ‘Troika’ – the name for given to the bankrupt nation’s creditors – as time has shown, this was a lot easier to say than do.
The new Greek Syriza government then began a process of what ultimately turned out to be failed negotiations with its creditors, who have so far refused to budge, insisting that Greece sticks to its austerity plan. After the Troika gave the Greek government an ultimatum – make more cuts and continue with the original austerity plan or lose aid and bail-out funds – Syriza refused and put the question on what to do next to its people in a referendum. When the results came in, the answer was a resounding ‘Oxi!’ to the EU.
The Greek government’s victory has been short-lived, however, and they must now re-enter negotiations with the leading Europeans powers. This will prove tricky because the guerrilla-style negotiating tactics which the Syriza government has so far employed has infuriated its creditors, who some say want to push Greece from the Euro. Greek money is running out and capital controls have already been imposed to limit how much money can be taken out from Greek ATM’s in a bid to save cash – it is likely that the country will go into full default and run out of Euros, thereby forcing the country out of the Euro, within days if the 6-month dispute isn’t broken.
What does the Greek financial crisis mean for the British economy?
First things first, let’s take a look at what this all means for the wider British economy. Whilst we have historically had what can only be described as a volatile relationship with our European cousins, it is important to remember that for many years now they have been our political and economic allies (the occasional disagreement aside, of course).
Our fellow European Union colleagues are also the UK’s most valuable trade partners, and we trade with them to the tune of tens of billions. In return we import a similarly vast amount of goods and services from the continent – in short, if Europe coughs, we jump, economically speaking. When this symbiotic trade relationship between us in the UK and our fellow Europeans is taken into account, it is all too clear as to why a weak or, worse still, economically depressed Europe is bad news for British business. Amongst other things, less trade equals less money flowing into the country and, in turn, fewer jobs for British people.
The Greek stand-off with its European creditors has come at a very difficult time, given that the British economy has not yet fully recovered from the bruising financial meltdown of 2008. There are genuine fears among economists that a Greek default will light the fuse for a wider European economic collapse and spark a domino effect, if you will, which will see larger debt-heavy Eurozone countries crash soon after Greece. However this is not a given because following the near collapse of the Greek economy in 2010, Greek debt was mostly bought up from its private debt holders by sovereign European governments. If Greece was to default on its debts now, whilst nations like Germany and France would stand to lose billions, the fact that banks and pension funds are at far less risk of losing out directly means and going bankrupt themselves means that an economic catastrophe is unlikely – basically, a second financial meltdown shouldn’t be on the cards. Also, it works in Europe’s favour that should the worst come to the worst, a Greek collapse will come as no surprise to the stock markets – large financial organisations and any other companies who are potentially exposed will already have prepared for the eventuality that Greece may well be turfed from the Euro, and have factored this into their budgets accordingly.
This is important to us in the UK because our close economic ties to Europe means that we are vulnerable to any potential economic shocks from the Eurozone area. However for all of the talk and guess-work on the topic of what will happen if Greece does end up being forced back to the drachma, in truth nobody knows, nor will they until it actually happens. What is certain is that a ‘Grexit’ wouldn’t exactly help the frail growth of the British economy – sharp falls on the FTSE 100 would be likely, at least in the short-term.
What will it mean for me if I am due to fly out on holiday to Greece?
If you have been excitedly looking forward to a week away at some idyllic Greek holiday resort in the near future, don’t panic! So far there has been little news of disruption or trouble from British tourists who are holidaying in Greece or its surrounding islands. However it is essential to use common sense and take precautions – remember, you will be travelling to a country which will potentially be pretty unstable over the coming weeks, should Greece actually end up exiting the Eurozone.
Firstly, be sure to take enough euros in cash to cover a potential emergency or any delays. Whilst at present the Foreign Office states that cards should work as normal and that the 60 euro cap on cash machine withdrawals only applies to local Greek account holders, there is a very real possibility that bank services could suddenly be limited if the crisis goes bad and the banking system collapses. You may suddenly find that ATM machines will only allow you to withdraw small sums of money, and that debit and credit cards will not work at hotels, car hire desks, restaurants, and shops – cash will be king, in other words.
On the subject of taking hard cash on your travels, it is also important to remember to take out as many euros as you can in small-denomination euro notes, both to ensure that hard-up hotels, bars, and shops are able to give you change when you are making purchases, and for your own safety – the atmosphere could be tense, and waving money around at such a difficult time for many locals could be asking for trouble. Think carefully about how much money you will need in cash, taking into account how long you will be spending in Greece and whether or not you have paid in advance for hotels and car hire, not to mention airport transfers.
Taking all this into account, it is also advised by travel experts to make sure that you are covered by an adequate travel insurance policy which will include a reasonable cover limit for any loss of money or valuables. An emphasis on the word ‘adequate’ is key – while virtually all travel insurance policies will cover loss of money or valuables, cover limits will vary, as will excesses and hidden exclusions. Travellers should also bear in mind that should the worst happen and you end up losing money or find yourself victim of an enterprising thief, your insurer will expect you to have taken precautions to safeguard your valuables. Be sure to pack your passport, important documents, and cash in your hand luggage when traveling and always, always deposit your essentials in a safety deposit box at your hotel.
That said, there are silver-linings for tourists. There will be some fantastic deals and bargains to be had on your travels, and you will find that a strong pound to euro exchange rate will maximise your spending power.
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