Last days of Pompeii, indeed! Monday morning means decision day in EUland over the Greek crisis. If Greece defaults, they are out of the Euro and the erstwhile “Ever Closer Union” will begin to unravel Interestingly, back in 2000 this was the topic of my Master’s Thesis in Econ which stated that a common currency and common central bank is inappropriate, ineffective, counter-productive and will fail where disparate and divergent monetary policies are needed for the pursuit of national interest and where there is divergent economic behaviors and realities that make a single interest rate appropriate. The EU is not and will never be a United States of Europe regardless of what the bureaucrats in Brussels want everyone to believe. And now there is a study that proves it, wonder if i got cited in the notes or not? 😉
Keep your eye on the news, this could have an effect even here in America.
The restaurants of Athens are full and no-one is panic-buying, but Greeks cannot be sure if their banks will last the week
Greeks do not know for certain if their banks will stay open next week, nor even whether euros or drachmas will emerge from cash machines beyond this month.
But in the graffiti-stained streets of Athens, alongside the shuttered windows of countless abandoned shops, the bars and restaurants are full of people trying to forget their troubles.
“You do get the sense that it’s like the last days of Pompeii,” said Marie-Therese Iatrou, a 49-year-old Athenian. “It’s like ‘sod it, I’m going to go out and have a drink with my friends’. Someone said they haven’t paid for their electricity or their rent, but they’re going to go out.”
As Greece moves inexorably towards the peak of its national crisis, the atmosphere in Athens says much about the ordeal of the country’s people. There are no visible signs of panic – at least not so far. No queues have formed outside banks; no crowds are panic-buying from supermarkets.
Instead, ordinary Greeks are overcome by weariness and fatalism. “There’s a level of fatigue and cynicism because this has been going on for five years now,” said Ms Iatrou. “We’re reaching the stage of resignation: that whatever is going to happen – let it happen.”
A man walks past graffiti reading “Free Greece from the European prison” written on the wall of an abandoned house in Athens
And what could happen in the coming days is the macroeconomic version of an avalanche. The worst-case scenario would begin with a run on the banks, forcing the government to impose capital controls and restrict all withdrawals.
The first boulders of this particular landslide may already have tumbled down the mountainside. Last Friday alone, Greeks withdrew €1.5 billion (£1.1 billion) from their accounts, bringing the total spirited out of the banking system last week to €5 billion (£3.6 billion).
The European Central Bank has responded with an emergency injection of €1.75 billion (£1.2 billion), which should ensure that Greek banks open their doors on Monday. What happens from Tuesday onwards is anyone’s guess.
The next stage of the avalanche would be a failure to repay €1.5 billion (£1.1 billion) to the International Monetary Fund by the due date of 30 June. If that happens, events could then unfold with inexorable power. A formal default could make Greece’s membership of the euro – and perhaps even of the European Union – impossible to sustain.
So it is that ordinary people must endure a profound sense of uncertainty. “It’s like living with lead in your stomach,” said Ms Iatrou. “You can’t plan ahead: you can’t be secure in the knowledge that you will get your pension. We simply don’t know what’s going to happen next week or next month.”
By chance, the eye of the storm in Greece happens to coincide with the beginning of the holiday season. This summer, about one million Britons are expected to visit a country where nothing is predictable from one week to the next.
Greek Prime Minister Alexis Tsipras
Visitors to the Greek islands this year might conceivably begin their holidays with euros in their wallets and go home with drachmas. In between might come a tumultuous period when capital controls lead the cash machines to run dry – and the government suspends all movement in and out of the country.
Travel agents have sought to play down any concerns and reassure British holidaymakers. A spokesman for Thomas Cook said that all contingency plans were in place, adding: “We’re prepared for any scenario.”
The Association of British Travel Agents (ABTA) said there was no need for anyone presently heading for Greece to rebook for another destination. “Any switch to a new currency would take time and Euros would likely be accepted in the interim,” said a statement from ABTA. “This is an unusual situation – but the industry is experienced in handling unusual situations.”
The one piece of advice is that travellers should take enough cash in euros to last for their entire holiday – just in case the banks collapse halfway through a summer break.
Meanwhile, frantic efforts are underway to secure a deal between Greece and its creditors before the IMF payment falls due in 10 days’ time. The aim of the talks is to release enough of the €7.2 billion (£5.1 billion) in Greece’s existing bailout fund to allow the country to avoid a default.
A woman walks past a graffiti called ‘Death of Euro’ by French street artist Goin in central Athens (AFP)
But the “troika” of creditors – consisting of the EU, the IMF and the European Central Bank – want Greece to agree to raise tax revenues and cut spending before any of this money can be disbursed.
So far, these demands have collided with the obduracy of Greece’s hard-left government, which has promised to avoid any further austerity measures. Alexis Tsipras, the Greek prime minister, has doggedly resisted the troika – while carefully holding open the possibility of a deal.
Leaders of the countries in the Eurozone will gather for an emergency meeting in Brussels on Monday. A senior ally of Mr Tsipras raised hopes for these talks by sending a conciliatory signal on Saturday.
Alekos Flabouraris, the Greek Minister of State, said that his government would present a revised plan to its creditors. “We will try to supplement our proposal so that we get closer to a solution,” he told Greek television. “We are not going there with the old proposal. Some work is being done to see where we can converge, so that we achieve a mutually beneficial solution.”
Mr Flabouraris added: “I am among those who believe that we are heading towards a solution.”
If no agreement is reached and a metaphorical avalanche sweeps away Greece’s membership of the euro, then Britain could find itself paying some of the bill. In one of his first acts as Prime Minister, David Cameron persuaded the EU to exempt Britain from funding bailout programmes for Eurozone countries.
However, this provision does not protect Britain from supporting an EU “balance of payments” assistance scheme running into billions of euros. If Greece falls out of the euro and needs help to pay for essential imports, then Athens could apply for money under this scheme. If so, Greece would receive loans backed by the EU budget – to which Britain is a big contributor.
Under this scenario, Britain would be unable to block support for Greece because the decision would be taken by a qualified majority vote in the Council of Ministers. In the past, the “balance of payments” support scheme has released billions of euros to help various EU members, including Latvia and Romania.
As the clock ticks down to the moment when Mr Tsipras must either accept a deal or risk an economic landslide, he is doing his best to maximise his options. The prime minister was still in Russia on Saturday after a long meeting with President Vladimir Putin in St Petersburg on Friday.
Alexis Tsipras speaks to Russian President Vladimir Putin at an economic forum in St Petersburg (AP)
Mr Tsipras has agreed to allow Russia to build a pipeline that will carry natural gas to Greece. The Kremlin has denied any intention of providing Greece with the general financial support that would might save the country in its hour of trial. Russia has economic troubles of its own, raising questions over whether Moscow has the money to rescue Greece even if Mr Putin wanted to do so.
But the very fact that Mr Tsipras has dealt directly with Mr Putin is designed as a warning to the rest of the EU. If they spurn Greece, then the prime minister is signalling that his country might switch its loyalties away from the Western alliance and into the embrace of Russia.
These concerns clearly weigh on Angela Merkel, the German Chancellor. Last week, she declared that a deal with Greece was still possible, adding: “Where there is a will, there’s a way.”
Mr Tsipras himself has repeated his insistence that an agreement will happen. “All those who are betting on crisis and terror scenarios will be proven wrong,” said a statement from his office during his visit to Russia. “There will be a solution based on respecting EU rules and democracy which would allow Greece to return to growth in the euro.”
If a deal is not struck by the Eurozone governments, then the next – and, almost certainly, final – chance will come at a summit of all EU leaders starting on Thursday. That could be the moment when Europe’s leaders will have to decide whether to open their chequebooks or cast Greece into the cold.