All You Need To Know About The Historic Greek Referendum, And What Lies Ahead

Posted on July 6, 2015 in Business and Economy, GlobeScope, Politics

By Shinjini Devbarman:

There is a high chance that Greece will leave the Euro, as an overwhelming number of people have voted against a bailout deal from foreign creditors in a referendum yesterday. The referendum basically asked the people if they were in favour of continuing getting payments from the troika or the IMF, the European Union, and the European Central Bank, in exchange for budget cuts and increased taxes. The country has been facing an enormous debt crisis for years now, as the economic climate is in a very bad shape.

Image credit: Mario Lolos
Image credit: Mario Lolos

As more than 61% of people have voted ‘No’ against an international bailout package that would have just added to the already existing debt, the question is what happens next for Greece. The finance minister, Yanis Varoufakis has already resigned stating Sunday’s referendum would, “stay in history as a unique moment when a small European nation rose up against debt bondage”.

Given the country’s financial status, the future of the country and its place in the Eurozone has come under scrutiny. The result of the referendum doesn’t necessarily mean that the Greeks have said no to Euro, although a Greek exit from the Euro zone is imminent.

The poll results on the referendum are seen as a victory of democracy, especially since the Greek Prime Minister Alexis Tspiras had campaigned heavily against the austerity measures proposed by the troika. He tweeted Sunday night saying that, “Even in the most difficult circumstances, democracy can’t be blackmailed – it is a dominant value and the way forward”.

The austerity measures as proposed by the Euro zone leaders would have included bailout money and severe budget cuts and tax increase, which have already driven thousands of people to poverty. The Greeks have been suffering under austerity measures from international creditors for five years.

If there is a Greek exit, the country will have to leave the euro and go back to its former currency Drachma. The new currency would be worth a lot less than the euro. Although, experts believe that a low value currency would not be a completely bad idea as it would help the economy to grow again, as foreign investors would want to buy property and goods in Greek at a lower price.

Now that the referendum has resulted in a ‘No’ to the EU bailout package, the Greek government would have to negotiate with the creditors again. The Grexit (Greek Exit) would have a direct impact on the Euro zone. A Grexit will leave the European Central bank holding billions of dollars of Greek debt which will put the Eurozone countries vulnerable to masses of investors retreating to safer shores. It is already weighing on markets as global companies are witnessing a demand drop off on their products as European customers hold off on spending.

As for the Greek, an exit from the Euro zone will be painful but still better than a total collapse of the economy. As long as Greece remains dependent on the troika for financial support, the economy will not be able to pay back its outstanding debt, let alone flourish economically. If there is a Grexit, the entire Euro zone will need to be ready to deal with its weaker members.