Greece is in economic meltdown, and the Greek government is on the brink of collapse after a series of pitched battles between police and demonstrators took place on the streets of Athens yesterday. The demonstrators were protesting against the government’s austerity measures, which were imposed to guarantee further bailout from the EU.
As a member of the Eurozone - that collection of countries who all share the euro currency - it is essential for zone’s success that the Greek government does not default on the repayment of its loans. However, one of causes to Greece’s near bankruptcy is its membership of the Eurozone. Without the euro, Greece was moderately successful. With the euro, it is bankrupt. The Eurozone is run for the benefit of its banks, not the people - as the citizens of Greece, Portugal, Ireland and Spain will tell you.
Membership of the Eurozone has very high fiscal standards - realistically you must be as successful a country as Germany to have any chance of maintaining a position with the Eurozone, which is unfeasible.
In an attempt to maintain some semblance of power, Greek Socialist Prime Minister, George Papandreou announced on national television yesterday, he would form a new government today, and ask for a vote of confidence, after negotiations to form a coalition with the Conservatives failed.
It was these events which saw world stocks tumble and EU leaders bicker over whether Greece should receive a further bailout. If the Greek banks implode, then this could “spread like contagion” bringing down major banks in Germany and France - an event which would be worse than the collapse of Lehman Brothers Bank in 2008.
The problem is Greece cannot afford to pay for any further bailouts, and the Greeks do not want it.
If Greece defaults on the loan (which it undoubtedly will), then this means that the banks who financed the bailout will be in serious shit.
And one of the big the knock-on effects if Greece falls is that America will have to foot the bill, as the U.S. is the major insurer of Greek loans.
More on Greece’s meltdown plus video, after the jump…