It is unlikely Greece will leave euro, and the country will move from crisis to crisis

On 30 June 2015, Greece defaulted on a payment of 1.6 billion euros that it had to make to the International Monetary Fund (IMF). This made Greece the first developed country to default on a payment to the IMF. Greece has already been bailed out twice by the economic troika of the IMF, European Commission and the European Central Bank (ECB). These bailouts came with severe austerity measures which had to be followed by the Greek government. The idea was that the government should start generating a budget surplus to be able to repay the money it owed to the troika. Budget surplus is a situation where the income of the government is greater than its expenditure. [caption id=“attachment_2316624” align=“alignleft” width=“380”]  Reuters[/caption] The troika wants the Greek government to achieve a primary budget surplus, which does not take interest payments on debt into account, of 3.5% of GDP by 2018. On 5 July 2015, Greece is supposed to vote on whether it is ready to face further austerity measures, which the economic troika wants Greece to follow if it wants a third bailout from them. The referendum question which Greece has to vote on will read as follows: Greek people are hereby asked to decide whether they accept a draft agreement document submitted by the European Commission, the European Central Bank and the International Monetary Fund, at the Euro group meeting held on June 25 and which consists of two documents: The first document is called Reforms for the Completion of the Current Program and Beyond and the second document is called Preliminary Debt Sustainability Analysis. Those citizens who reject the institutions’ proposal vote NO. Those citizens who accept the institutions’ proposal vote YES. The trouble is that neither of these two documents has been made available to the Greeks. Also, as Niels Jensen points out in the Absolute Return Letter for July 2015 titled A Return to the Fundamentals, “However, none of the said documents have been made available to the public. Nor have they been translated into Greek, so the Greeks have been asked to vote on something many of them won’t understand.” As of now, the number of people likely to vote NO, outnumber those likely to vote YES. A Reuters news report refers to a poll carried out by a Greek newspaper: “The poll, conducted between June 28-30 and published in the Efimerida ton Syntakton newspaper, showed 54 percent of those planning to vote in Sunday’s referendum would oppose the bailout against 33 percent in favor.” Nonetheless, this gap seems to be narrowing. On 28 June 2015, the Greek government decided to shut down banks and impose capital control. “Of those polled before the announcement of the bank closures, 57 percent said they would vote No against 30 percent for who would vote Yes. Of those polled after, the Nos were at 46 percent against 37 percent for Yes,” reports Reuters. Hence, the gap between Nos and Yesses seems to be narrowing down. And chances are this gap will narrow down further in the days to come. As Jensen writes: “It wouldn’t be unreasonable to assume that a large percentage of the electorate will base their vote not on what they would like to vote but on what is actually happening around them, and in that respect events favour the ‘Yes’ camp.” This is a very interesting point. Greek banks started running out of cash around June 27. On June 28, a decision was made to shutdown banks. The daily withdrawal limits from an ATM has been limited to 60 euros. This has caused huge problems for pensioners who did not have ATM cards. In fact, it was one of the rare occasions when Greek citizens realised that money and currency aren’t one and the same thing. As an article on Wired.com points out: “As Greek citizens coming away from ATMs empty-handed can attest, it turns out that money and currency aren’t the same thing.” If the Greeks were to vote against the referendum a similar situation in a worse form is likely to play out all over again. Given this, the chances are that Greeks will come around to voting Yes and continue staying in the Eurzone. Eurzone is a term used in reference to the countries which use euro as their currency. There are other reasons as to why Greeks might end up staying in the Eurozone. If Greeks decide to leave the euro, then other countries like Italy, Spain, Portugal etc., might make a similar decision. This would put the entire idea of the United States of Europe in jeopardy. In the aftermath of the Second World War the economic integration of Europe was deemed to be necessary by many experts to create some sort of bond between different countries in a continent destroyed by extreme forms of nationalism during the Second World War. The institutions that started this economic integration of Europe gradually evolved into the European Union (EU) which was established by the Maastricht Treaty signed on December 9 and 10, 1991. After the formation of the EU by the passage of the Maastricht Treaty, the members became bound to start a monetary union by January 1, 1999. Hence, the euro is as much a political project as it is an economic one. Given this, chances are in the days to come a deal will be hammered out between Greece and the economic troika of ECB, IMF and the European Commission. Currently both the sides are a tad aggressive and do not want to blink first to ensure that they can get a better deal. Secondly, as Jensen points out: “Nobody in Europe (other than Putin) want the Greeks to establish closer ties with Russia which may be their only option if they are forced to leave the European Union.” Neither would the United States want anything like this to happen. Given these reasons it is highly likely that the Greeks will continue to be a part of the euro and the Eurozone. Meanwhile, they will keep moving from crisis to crisis. (Vivek Kaul is the author of the Easy Money trilogy. He tweets @kaul_vivek)