What Has Happened in Greece?

June 30th, 2015 / Aidan Johnson

Hang on a second, what has just happened in Greece? And with all this economic babble going on, how does a person understand anything?

Rest assured, because this is going to be a (mercifully brief) summary of the events and their background, with explanations of economic terms along the way for those of us who don’t have masters in political economy.

its all greek to me


In a nutshell, Greece’s economy was smacked around badly by the GFC back in 2010. Greece borrowed fairly large amounts of money from the EU, from Germany, and from the IMF (among others), and racked up a horrendous debt level (an unsustainable 174% of GDP). Although on paper it isn’t catastrophic (over €11 billion, which is chump change compared to America’s debt levels).

So to pay off the debts, the IMF and EU have been in discussions about a new loan deal. But there would be strings attached: austerity measures. Whilst they shouldn’t include pension or wage cuts (according to the EU), Greece is still extremely suspicious of the harsh austerity measures that will be required to get the loans.

In response to everything that has been happening, the Greek Prime Minister, Alexis Tspiras, has walked out of negotiations with the EU, and called a snap plebiscite on whether Greece’s hoi paloi want more austerity or not. This would, in effect, end Greece’s involvement with the EU and the Eurozone.


If the country does leave the Eurozone, and by extension the EU, what will happen? Well, no one is really sure, as it’s never been done before. There are no precedents, although it doesn’t look very good for Greece. The government would default on its debts, as well as needing to pay its own economic requirements with a new currency, which would likely be very weak. And that is just a brief overview, without the heavy details on the currency transfers, or the legality of abandoning the EU.

Ultimately the losers would be the Greek people. But with the potential of more austerity measures being imposed on them by foreign governments, it is easy to understand why they are resentful, and want to try something new.


So what, you may be thinking. A tiny Southern European country, with a dubious financial history defaults on some loans? How does that impact on me?

Well, if the stock markets around the world yesterday are anything to go off, you may already be experiencing some of the backlash.

Naturally, European investors are in a panic. The floor has opened up beneath the Euro and it is spiraling downwards in value, and Greece is experiencing capital flight at shocking rates. Even its neighbors, Macedonia, Albania, and Serbia, have told their respective banks to pull out of Greece.

But it isn’t just Europe that has been shocked by the Greek debt crisis. Stock markets around the globe have been very flighty, with Australia falling over 2% alone.

In China, the communist party has adopted drastic measures in an attempt to staunch the capital flight, which saw Shanghai’s stock exchange drop 7.7%. There are concerns that this shock may even cause the bubble that has been growing in China for sometime to burst – there are already negative impacts being felt across the Asian region. Even India, which has no real connections with the Greek crisis, has been experiencing capital outflows.

And none of that even begins to start on the political impacts, such as expanding Russian influence, the rise of nationalist parties such as UKIP, and the fracturing of the EU, which could have longer-term impacts on life, as we know it. Even here in Australia.


Our advice? If you have any shares in Greek banks, get rid of them ASAP. Unless a miracle happens, Greece is going to be in a lot of trouble for the foreseeable future. But, odds on, this shouldn’t be another GFC.


A mercifully brief summary of the events, with explanations of economic terms along the way for those of us who don’t have a masters in political economy.

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