GrExit: How we came to this pass

With just hours to go before Greece officially forfeits on its debt payment interest of 1.5 billion Euro ($2 billion), it may be of interest to explore how all of this came to be. We have seen the European Central Bank using emergency bank funding instruments and even imposed Capital Controls ‘in extremis’ in the past with both Ireland and especially during the banking crisis in Cyprus. What is happening in Greece goes way beyond those examples of ECB ‘strongarming’ EU member nation states into doing its bidding.


Both Cyprus and Ireland folded in the face of ECB and IMF pressure. Greece has not. At midnight on 1st. July Greece will be in default on its debts and that reality is now a foregone conclusion. The sideshow of a referendum next weekend is just political theatre. It comes down to a yes-no vote that will determine whether Greece stays in Europe.The 3 billion Euros ‘Emergency fund’ will remain firmly in the ECB pocket as it plays hard ball with the Greeks.

A YES vote will mean that Austerity and a ‘sea change’ in Greek social funding will be attempted once more, abet with much stricter guidelines and program targets. A NO vote will mean that Greece and European Community will part company and the Greek Drachma will be reintroduced.

How this will happen nobody knows as there are no rules written that allows for a member state to exit the Euro. Be advised however that NO will be the answer from the Greek people.

The Greek Capital Controls are to date fairly minor with only Greek citizens being subject to reductions on bank withdrawals of 60 Euros a day. The hiatus between the technical default at midnight 30 th. June and the referendum date leaves Greeks in ‘No-mans’ Land’.

Further inputs of credit remain suspended but both the Greeks and the EU know that the ECB and IMF have a one month ‘breathing space’ between a technical default and when the mechanism of a real default begins to bite. Hence this period of ‘phoney war’ where both sides ratchet up the rhetoric as a method to screw further concessions out of each other. The facts are that little of real significancy fiscally will occur until the end of July.

The hidden complexities of voting either YES or NO by the Greeks next weekend have been further obscured as the voTe descends into a NO vote that will force Greece to leave the EU or a YES vote that may give more time to attempt to re-negotiate more favourable conditions. Either way this vote does NOTHING to address the underlying reasons why Greece is in this fix. It’s even been suggested that this vote is just another negotiating ploy to put pressure on the ECB to come up with more palatable conditions.

The mood in Athens os sombre rather than fearful. The average Greek is conflicted. Ask them if they want to leave Europe and a solid majority say NO. Ask them if they want to live within their means and live under austerity measures and they say also say NO by a massive majority.

These two answers are contradictory and represent the bipolar nature of the Greek financial conundrum. They can’t have it BOTH ways.They must choose the least horrible outcome.

The betting on the referendum is for a marginal YES vote but as positions harden both philosophically and as a consequence of jockeying for negotiating advantage the NOES are rising.

If the YES voters win then the Greek socialist government must fall and initiate immediate elections to remain philosophically consistent. A NO vote is all ‘unexplored territory’ and anything is possible. Spain with elections due soon is watching with interest, as are Italy, and Portugal. Europe is so fiscally fragile currently that even GrExit might trigger a avalanche of banking crises.