Some stuff is going down in Greece - an understatement of the year, but something clearly said by a person who hasn't been reading the news properly. As in, me. Problem is, if you don't read all the developments chronologically, suddenly every article is referring to contexts you don't understand and involves sentences like 'A third Greek bailout would include taxing conditions, as it would be issued under the European Stability Mechanism'.
From what I can gather, Greece has no money and I don't quite understand why, or what happens when a country doesn't have any money. Also, if we all go to Greece on holiday and spend loads of euros there will that help? I like hummus. I spoke to Economics lecturer Dave Chivers to get answers to the questions that the main news outlets aren't answering, because they presume everyone totally understands. Like 'What's Greece and why is it in a crisis?'
1. How did Greece get into this situation?
The whole issue started in 2009 when Greece announced that the level of government debt had been mis-reported. Remember, this was in the aftermath of the global financial crisis started in 2008 and so investors were concerned that Greece wouldn't be able to pay back their debt, which meant it became expensive for Greece to borrow money. This led to the first bail out loan in 2010, which was provided by the European Central Bank and the International Monetary Fund (you might have heard of the group's nickname as Troika). One of the conditions of this loan was that the Greek government had to make cuts on spending. Most economists don't think this was a good idea and think that this might be the reason Greece is still in this situation - it's like a loan shark breaking someones kneecaps and expecting them to repay their debt even though their profession is a dog walker. To understand debt and how fast a country needs to pay it back this is a good starting point.
2. What was the whole YES and NO thing about?
The vote on Sunday the 5th of July was to decide whether to accept the terms of a new bailout deal or not - basically more austerity. The large vote for no means this was largely rejected by the Greek population.
3. What are the ramifications of it being NO?
Unless the Greek government can sort out a deal quickly, then it is likely that Greece will have to exit the euro (hence the term you might have seen: 'Grexit') and start using a new currency of their own. You could argue that being part of the euro has been a problem for Greece. If Greece had its own currency they could set their own interest rates (economists call this monetary policy). All countries who have the euro as currency are controlled by the European central bank which has to set interest rates to account for all countries within the eurozone.Also, by having their own currency it would be cheaper (relatively speaking) to buy Greek goods, which would boost exports and hence income for the Greeks.
The problem is that defaulting on current debts and switching to a new currency would be extremely costly and creates a lot of uncertainty. This is a good article to read for more info on that.
4. How do people get their money?!
Currently there is run on the banks which means people are very worried that the banks will run out of money - their money. This is why we are seeing scenes of people queuing up to take their money out and which is why capital controls have been put in place to stop people taking out more than 60 euros a day. This is happening because there is no lender of last resort like the bank of England can do in the UK.
5. Shouldn't we all go there on holiday right now with euros and spend loads or is it a bad idea to visit now?
Tourism is a big part of Greece's national income, so by going there and spending money on Ouzo and taramasalata (or other things, obviously) you are helping generating income for the country. This should also generate income for the government through tax to help repay debts (however there is a a big problem with tax evasion in Greece). Still, definitely go. Just make sure you take enough cash with you as although the limit of 60 euros withdrawal is only for Greek residents, so it might be difficult to get money out if you need more. See the foreign office travel advice before you go
6. If I buy hummus or other products in the UK, that are made in Greece, will that help Greece?
It won't hurt but to pay off the total Greek government debt every person in the UK would have to eat over 5000 tubs of hummus - assuming that the Greek government would make 1 euro off every hummus tub sold (which it definitely doesn't). So probably don't worry about that.
Thank you Dave Chivers, I feel like I understand things more now and will be able to follow articles surrounding Greece with a little more understanding. He has a blog which breaks down complex-sounded economics into more manageable chunks, and it is through this blog that I finally understood what inflation/hyperinflation meant so give it a read.
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This article originally appeared on The Debrief.