The Greek financial crisis: an expert weighs in as deadline looms

Stock markets around the world watched on edge as Greece’s five-year financial impasse took a perilous new turn this week.

The government announced June 28 that banks and the country’s stock market would be closed for the week as Prime Minister Alexis Tsipras called for a referendum next Sunday. Greeks will be deciding whether to reject or accept budget and reform proposals made by creditors – rejecting such a deal could put at risk Greece’s financial future and its continued membership in the European Union.

Greek officials took the steps to staunch the flow of money out of Greek banks in advance of a pending payment to the International Monetary Fund, and the expiration of its bailout agreement on June 30.    

With the situation unraveling, writer Noreen Ahmed-Ullah spoke with Phil Triadafilopoulos, associate professor in the department of political science at UTSC and the School of Public Policy and Governance.

Greece has been in the news for months. What created the chaotic situation we see unfolding in Greece now?
The Greek side claims it rejected an unacceptable “take it or leave it” offer from the creditors. The creditors reject this interpretation, claiming that Prime Minister Tsipras broke off negotiations as they were ongoing. What actually spurred Tsipras’ decision is unclear. He may have believed that the creditors’ offer was unlikely to pass a vote in the Greek parliament and therefore opted to bypass parliament altogether and put the question of whether to proceed with continuing austerity directly to the Greek people.  His comments since then suggest that he is hoping for a strong “No” vote to enhance his bargaining position.

What we see unfolding in Greece are actions predicated on fear: fear on the part of Greek depositors of having their savings wiped out, and fear on the part of investors worried about the viability of the Eurozone. The events of the past few days make it clear that the crisis extends far beyond Greece’s borders and get at the very future of the Eurozone.

With bank branches closed and ATMs without sufficient funds, who are the most affected by this latest crisis? 
My sense is that more prosperous Greeks have prepared for this by withdrawing their funds and depositing them elsewhere. Those most affected are people who require cash to meet day-to-day needs. So the weakest are paying the highest price. The middle class is also under immense strain as their assets – typically in real estate – have been rendered virtually worthless.  The prospect of further pension and wage cuts has reinforced a more general sense of helplessness among the Greek middle class.

What is the point of the referendum next Sunday? Are Greeks ultimately voting on membership in the European Union with this vote?
Several EU leaders have told the Greek government that the vote will effectively be on Greece’s membership in the Eurozone and European Union. Prime Minister Tsipras has rejected this, arguing that only the Greek government can determine the question to be voted on in the referendum. As mentioned, he believes a “No” vote will strengthen his bargaining position. Then again, it may be that the time for bargaining will have passed – this is the message coming out of Berlin. We simply do not know.

Will Greeks opt against the budget and reform proposals that creditors are demanding or approve them?
It’s clear that most Greeks are not keen on continuing with austerity. The costs have been staggering: a 25 per cent contraction of the Greek economy, unemployment at more than 25 per cent, youth unemployment now at about 60 per cent, and a sharp spike in the suicide rate.  

Like many economists, the overwhelming majority of Greeks believe that austerity has failed. Yet, it is not clear that a majority of Greek voters would reject even this poison pill if it meant having to leave the EU. Greece’s membership in the EU is about more than freedom of goods, services and people; it’s about Greece’s very identity. Greeks have been willing to pay an extremely high price to maintain Greece’s membership in the Eurozone and, by extension, the EU.  The referendum will determine whether they’ve reached their breaking point. 

Do you have family in Greece? Have you heard from them today? 
I do have family in Greece. Those who I’ve heard from expressed disappointment with the creditors’ most recent offer, as the terms of the deal would in many ways be even worse than those that they’ve been living with until now. Some are considering voting for the “No” side, knowing full well that doing so carries significant risks. But Greeks of a certain age are familiar with uncertainty and hardship; many lived through the Nazi occupation in World War II and the bloody civil war that followed. They also put up with a period of military dictatorship from 1967 to 1974 and were uncomfortably close to the wars that tore apart Yugoslavia in the early 1990s. Nevertheless, there is a sense of bewilderment at how things could have gone so wrong so quickly and a despair born out of the fact that the options they are left with all come with high costs and uncertain returns.