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Saturday , 22 October 2016
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Greece Crisis Unravelled

Amid no conclusive talks Greece has officially missed the IMF repayment deadline of its scheduled payment of €1.6Bn.

What’s the latest?

Eurozone finance minister has rejected Greek plea for a bailout extension hours before the country is scheduled to pay its long standing €1.6bn payment to IMF.

Greek Prime Minister Alexis Tsipras had requested a short term extension to the scheduled payback date and also a new bailout package that could buy Greece time to stabilize.

Greek financial aids have been coming from European commission, International Monetary fund and Eurozone’s European central Bank.  A €1.6bn payment due to IMF on Tuesday and an overall debt of €323bn situation in Greece looks to be worsening over time. Amid the grey clouds local population have started queuing up at ATM machines to withdraw as much liquid as possible and banks have no new loans and investors. Banks were shut in the country on Monday as no talks could be reached on the bailout package between the government and the creditors. ATM withdrawals have been capped at €60 a day; however no cap has been applied on international Debit/credit Cards to support tourists travelling to the country. 1000 bank branches will function in the country on Wednesday only to allow pensioners to withdraw their pension capped to an amount of €120.

What if Greece Defaults?

The sky will not fall if Greece does not repay its loan to IMF. International Monetary Fund will simply term it as “arrears” which are due from Greece. Missing the payment will seriously put doubts in the minds of creditors regarding its capacity to repay back the debt it’s already under. Country’s Unemployment rate stands at more than 25% and an increasing GDP-Debt ratio difference add to it a scheduled payment default of IMF, Greece would surely find it difficult to convince investors for its  next bailout if required.

The billion-Euro Sunday…

 Sunday’s referendum will decide whether Greece will stay in Eurozone or move back to drachma. If country reached no agreement with its investors it will most likely be taken off life support which it desperately needs. Crisis could also see new government coming in place and also a look towards Russia and china for a probable bailout.

If Greek population votes “NO” it means people want to exit the Eurozone, no bailout package and it’s time to move back todrachma. If People vote a “Yes”, new terms will be negotiated between the government and creditors. Talking on a broader perspective the European commission wants Greek government to lay heavy taxes and cut down pension.

Greece besides this IMF payment has another payment scheduled to the European central bank on the 20th of July.

Greece Crisis and Global Economy

Greece has been the weakest link in Eurozone and the Greek economy has surged down a quarter in the last few years. The crisis began in 2010 when the Eurozone went into crisis wherein most investors had sold their share in government bonds and holdings (few optimistic investors did see an ironman comeback however the situation for them has not turned out as planned) .

Ground Zero Banking at Greece
Greece Banks were shut down amidst the fear that common population might want to withdraw monies from their accounts which would worsen the liquidity with the government. New loans and borrowings are practically on a standstill and countries financial institutions are not able to perform the job they are meant to do. European central Bank has capped the emergency credit line to Greece banks; People have queued in large numbers outside ATM’s taking away all the money that’s been funnelled by the European Bank. 
How did Greece get here?
Greece became the centre of the European Debt crisis when Wall Street collapsed in 2008. With global markets still under crisis Greece announced in 2009 that it had been understating its deficit figures and the picture is darker.  This had sent out shockwave to investors and global market regarding the financial stability of Greece as an economy. Greece had built firewalls to obtain financial support from the global markets and was looking on path to set off one of the biggest financial crisis in the modern times.

Greek bailout came from the so called troika- International Monetary Fund, European Commission and THE European central Bank. Bailouts came with conditions. Creditors imposed terms like pension cuts, higher tax rates and deep budget cuts for the country to pay back its loan. Creditors also asked Greece to fine tune its economy with measures to have stringent laws against tax evasion and business frauds.

BY: Manu Arora

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