The European Union is on the brink of a crisis in Greece, after talks between EU officials, the International Monetary Fund and Greece fell through last weekend.
Things have gotten so bad that Greece closed down its banks on Monday to stem a tide of mass withdrawals that could have brought its economy to a halt.
Since Greece will dominate the headlines this week, we thought we’d offer some basics so you can help your audience understand how the story might affect them.
The country owes the IMF $1.7 billion in loan repayments by Tuesday, and it also owes its creditors and the European Central Bank billions of dollars as well.
Right now, Greece doesn’t have a way to pay any of these debts back. It is also running out of cash — the ECB declined Greece’s request to inject more euros into its economy.
Before we explore what this means for the global economy, let’s take a look at how we got here.
Beginnings of a crisis
In 2009, not long after Wall Street imploded in 2008, Greece announced that its long-term deficit figures were far higher than they originally reported.
As a result, financial markets lost confidence in Greece’s ability to pay back its loans and the country lost access to the credit that was keeping it afloat.
To avoid a bankruptcy that would derail the Eurozone, the IMF, ECB and European Commission (referred to as the troika) gave Greece the first of two bailouts in 2010 that would eventually total $264 billion.
Problems still loom
Although Greece received that whopping sum from European officials, its economy has still struggled.
The bailout came with strict stipulations that required Greek officials to adopt harsh austerity measures including laying off public workers, cutting spending and raising taxes. Most of that $264 billion was used to pay off creditors, even as unemployment rates in Greece reached depression-level heights of 25 percent.
Fed up with their economic situation, Greeks elected a far-left government, Syriza, in January with promises from its leader, Alexis Tsipras, that his party would end austerity and re-negotiate Greece’s debt.
The Showdown with Syriza
Despite Syriza’s hardline against austerity and EU leaders, Tsipras and his team conceded to more structural economic changes in February in return for a short-term $7 billion bailout that would once again avert bankruptcy.
However, when Syriza submitted its proposed reforms to Greece’s pensions and taxes, the troika rejected them and asked the Greek team to come back with stronger austerity reforms.
Tsipras, in a move that many are calling reckless, responded in kind last weekend by calling for a national referendum on austerity on July 5. What’s even more shocking is that Syriza is calling on Greeks to vote against austerity, which, if that happens, could bring Greece to the brink of bankruptcy.
The Wall Street Journal and other outlets say that Tsipras decided to call a referendum and push voters to vote no because he wants an increased bargaining chip with troika negotiators.
If Greece votes no, Syriza thinks that the troika will blink and accept weaker austerity measures to prevent a Greek financial collapse that could spillover to the rest of the Eurozone.
We’ve been here before. In 2011, the Greek government also called for a referendum on austerity, but ended up canceling it.
That could certainly happen again this time around. Curiously, one of the biggest opponents of the first referendum was Tsipras himself, Quartz writes.
“If the Greek prime minister himself tries to have the people face such dilemmas… the Greek banks and the Greek economy will collapse before we even reach the voting booth… because of the possibility that the people may face such a dilemma, they might vote ‘no.’”
Right now, however, there’s no indication that the national vote will be withdrawn. Stock markets around the world are dropping sharply in response.
If it does come to bankruptcy, European economists appear confident that it will not unravel the eurozone.
Holger Schmieding, chief economist at Berenberg Bank in London, told the New York Times that Greece’s struggle is not a “black swan moment” for Europe and is confident that the contingency plans that the Troika have drawn up could contain a financial contagion.
If Greece does break from the Eurozone, it’s also possible that they’ll turn to Russia or China to help them put their finances in order. Pulling Greece out of the European fold would be a huge victory for Russian president Vladimir Putin, who is looking for a victory against the West as EU and U.S. sanctions pummel his economy.
For story ideas, your city is bound to have a Greek community. Talk to business and church leaders for how the crisis is affecting them and their congregations. Talk to travel agents: has anyone canceled plans to visit Greece? And watch social for people from your area who might be traveling in Greece and is affected by the crisis.