Greece Stumbling Towards a Default

US markets tanked on Monday (S+P 500 down 2.09%, DJIA down 1.95%, NASDAQ down 2.40%) as worries mounted over the current situation in Greece.

It now appears that there will be no last minute deal between the "troika" (Eurozone countries, European Central Bank and the International Monetary Fund) and Greece that will prevent a Greek default. Greece is supposed to be making a $1.7 billion debt payment to the International Monetary Fund on Tuesday, though they have already stated that they don't have the means to pay it.

After the Greek government made concessions about a week ago, many people assumed that the two sides would be able to avert a default once again. Things took a sharp twist, however, after Greece announced that it would be holding a nationwide referendum on Sunday, July 5th, to determine whether or not the country will accept a deal with its creditors. This news angered the "troika", as they simply saw the maneuver as a stalling tactic, and the group dug in their heels even more.

The weekend news was peppered with shots of people lining up at Greek banks to withdraw Euros. Greece announced a one-day banking holiday on Monday in order to prevent a continued "run on the banks" - this holiday has since been extended until the referendum takes place on Sunday. In the meantime, Greek citizens had been hoarding everything they can get their hands on, from food to gasoline to Euros to water.

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Many people feel as though a "Grexit" could be the catalyst for the world tipping back into a deep recession. If Greece leaves the European Union, will other countries that are struggling financially follow? If a Greek exit from the European Union destabilizes the global economy, what weapons does the global economy have to fight another slowdown?

This is the ultimate danger in all of this - that a "Grexit" throws the global economy into a turmoil that it doesn't have the weapons to recover from. The "Great Recession" resulted in many trillions of dollars of fiscal stimulus being thrown at the global economy - if there is another "Great Recession", how will the world cope this time around with a depleted assortment of weapons?

Filed under: General Knowledge