Later today the Greeks go to the polls to decide who they want to form a Government and do their best for their country. Sounds simple. But this is probably the most important European election since the introductions of the Euro in 1999.
The country failed to form a Government in the last Elections in May, so second time round it is hoped that there is some result. However this is looking increasingly unlikely. Groups from the far left which are opposed to austerity measures have gained massive popularity with the Greek public who are sick of punishing cuts and with the rising homelessness levels. The poverty seen in Athens is awful is you have seen the TV reports, especially on Sky. Problem is, they don’t have enough popularity to win an election outright. So they are stuck with the issue we had a couple of years ago when our political parties had to form a coalition Government. They failed in Greece last time to do this and almost certainly won’t succeed this time.
If the left pocket the votes they are predicted to get, this is going to cause some major issues for Greece and the rest of Europe. When Greece were given the hundreds of billions if Euros in bailout funds, it was on the premise that they would honor the package and implement incredible cuts and wage reductions. The leftist parties have pledged to reverse these, much to the delight of the public, but much to the dismay of the rest of Europe. If Greece votes against austerity, you can almost guarantee that Greece will have to leave the Euro as the people ruling the country are positioned totally against the principles of the bailout agreements. That means a return to the Drachma.
So what happens when a country has to return to an old currency? Well it’s not really happened before, not to my knowledge. But according to reports, because the Drachma will be worth considerably less, hundreds, if not thousands of businesses would go bust straight away as they would not be able to pay back the money they borrowed in Euro format. Default on a massive scale. Banks may collapse, unrest could spread and descend into anarchy. These are some of the scenarios predicted by a lot of the news networks. Maybe looking for headlines, but if you look at the hard facts, scenarios which are very possible.
Existing money will have to either be ripped to indicate that a Euro note is now a Drachma, or exchanged for the new currency. Though it will take time for the new currency to filter through. The affects of a default and withdrawal from the Euro on the rest of the continent will be felt hard. The biggest risk is contagion. If Greek banks fail, the hardest problem is to stop the domino effect that occurred when Lehman Brothers collapsed which started the whole financial crisis we are in now. Spanish banks have just received 100bn Euros in what many believe is a bailout/protective barrier in anticipation of a Greek exit from the Euro.
The Bank of England has just done a similar thing. They have made £140bn available for banks to use if they feel they need it and to help protect them from the fallout of an expected Greek exit. I think it is pretty clear that the majority of Europe feels that Greece is on it’s way out and the main job now is to put in place firewalls to stop the spread of contagion to other weak nations.
Question is what would this do to our own economy. Say there is a Greek exit after Sunday’s elections. And say other countries fall victim to the exit, what happens to us? The way I see it we would be affected, but not as violently as others would be. Luckily, we kept Sterling as our main currency which should shield us slightly. Europe is a very big trader of ours, so we would feel it when it comes to exports. The worst thing though is going to be the reaction on the markets. Britain has a HUGE financial sector which is going to reel badly if there is a Greek exit. This is where billions upon billions would be lost. Hence the B of E’s extra £140bn.
Vital to any economy is consumer confidence. What I do hope is that the people in this country will realize that Europe’s problems don’t necessarily don’t have to be ours. We’re not centrally structured like Europe, not tied to one currency and so have more maneuverability to help cope with European problems. If consumer confidence stays relatively steady, Britain could ride this out sort us unscathed. Hopefully.
The Euro problem is a very large mess. Writing posts about such a subject is difficult as there is always lots to explain and making sure I don’t confuse people or jump around too quickly from issue to issue is difficult. So hopefully I didn’t lose too many of you in all of that! What I do hope is that Greece manages to cobble together a Government that manages to please both their own people and the rest if Europe. But looking at current indications, someone is going to be disappointed.
i think if was in greece and had any savings i d convert them to $ for now. where does all this dosh come from? just let them off and start again. i think its pretty obvious our present monetary system doesnt work due to mans inherent greed and selfishness , one of the reasons we will never really be eco friendly until man attains different values, which he probably never will, what other species has built weapons that can annihilate the place they inhabit !! i m not a trekky wait ,ok jim , but on star trek man… Read more »
It doesn’t matter what they do or anyone else to be honest, if you just look at it from the basic we have borrowed £x and need to pay back the same amount, the world has borrowed more in monetary terms than the World has recourses, so if you total up all the gold, all the oil, all the diamonds etc etc based on what’s already been dug up and what we believe is still available to be dug up we don’t have enough to pay the current debt off. Awesome. Like wise if the American government took every cent/dollar… Read more »