The financial crisis gripping Greece is really not that complicated. Greece opted to join the Eurozone and replace its local currency, the drachma, with the euro in 2001. Its government then started tapping the Eurozone financial market taking out euro-denominated loans as part of its normal course of doing business.
However, underneath all that, Greece’s fiscal position was not sound (i.e. the size of its liabilities were perilously bigger than resources on hand to fund them), and the 2008 Global Financial Crisis (GFC) brought that underlying weakness to the fore. While stronger economies eventually weathered that storm (thanks to their stash of cash reserves), Greece came out of it severely insolvent (financialese for being in really bad shape) — much so that it required a bailout from the International Monetary Fund (IMF) and the European Central Bank. But not quite able to use those loans to get back on its feet, Greece took out another bailout in 2012. Coming out of that and the previous were creditors’ conditions piled upon one another — draconian austerity measures that progressively crushed the life out of its limping economy.
|SUPPORT INDEPENDENT SOCIAL COMMENTARY!|
Subscribe to our Substack community GRP Insider to receive by email our in-depth free weekly newsletter. Opt into a paid subscription and you'll get premium insider briefs and insights from us daily.
Subscribe to our Substack newsletter, GRP Insider!
So, since 2012, Greece had been teetering under the weight of a couple hundred billion euros in loans that started coming due this year. Meanwhile, ordinary Greeks suffered for years under the austerity measures thanks to the massive unemployment precipitated by the drying up of available capital and drastic drops in personal income due to reductions in salaries implemented by struggling businesses and public enterprises. And over the last several months, to that injury was added the insult of ordinary Greeks getting slapped restrictions on access to their own personal funds kept in Greece’s banks to prevent bank runs.
No surprises then that Greeks voted to default on the loans in a public referendum held this week. They were hopping mad and had recently put a far-left-leaning government in power. It was a perfect storm for a vote to stop paying these loans to prevail.
Left to its devices, Greece will likely have to revert to its old currency, the drachma, and prop up confidence in it on its own. But without a vault full of gold bullion to back it, the value of the drachma really rests upon the perceived value in the Greek government’s assurance to its public that its new currency is real money. That’s gonna be a tall order for a country that limped along economically over the last 14 years (not counting the years before 2001 when it successfully masked its underlying financial rot).
So much for economic integration. Creating bigger markets only benefits those who profit from bigger markets. But for the rest of the lot who merely piggyback on other people’s capital, it comes down to the really simple definition of poverty:
A habitual entering into commitments one is inherently incapable of honouring.
It’s the universal poverty equation that consistently successfully illustrates why poverty is, regardless of all the noise surrounding it, essentially a simple human condition.
benign0 is the Webmaster of GetRealPhilippines.com.