Greece Debt Crisis: The Greek economy is in severe crisis, and has in fact reached crisis point this morning at around 8am Australian EST. Greece is officially out of cash after defaulting on borrowings from the International Monetary Fund.
Many economists are expecting another Lehman Brothers 2, leading to economic world economy collapses, possible but not likely according to Robert J. Samuelson. Greece is only a small part of Euro economy, 1.9% of all 19 countries in the Euro zone. Germany exports only .2% of it’s GDP to Greece and the USA exports a few 1000’s of a % of its GDP to Greece.
Another newsworthy item important to those in Greece or with interests there? What real impact does it have on our economy? On your business? This is very much dependent on how much you’re exported to Greece and what effect it MAY have on the global market.
This isn’t to say it’s not important and to those living in Greece with the austerity measures and extreme unemployment, this is a further blow.
Within Greece itself businesses are only dealing in cash, additionally, there is only a restricted amount of cash allowed from ATM’sand the banks are shut. It would seem keeping it under the mattress would be about the best option. Not particularly so…
There is a referendum this Sunday asking Greeks if they want to stay with the Euro or revive the drachma. This would present a whole new raft of problems for the Greek economy, trying to determine the value of the drachma against the Euro being the first of them.
Contagion (contamination) of the Greek economy could lead to a drop in the Euro, in turn effecting US Exporters leading to a drop in the share market and rise in interest rates.
As Lachman noted, if the ECB mounts a defence of the euro, the currency could experience a “significant further depreciation.” A cheaper euro would in turn hurt U.S. exporters. In addition to lower global stock prices, there could also be higher interest rates. Still, most of the pain will be felt by the 11 million Greeks.
Reviving the drachma without “laws or precedents for how to convert all payment flows, assets and liabilities” from euros would create chaos in Greece, testified Dartmouth’s Matthew Slaughter. Consumption and business investment spending would plunge, with “double-digit declines . . . conceivable”.
The commitment to the Euro was supposed to be an irrevocable obligation, creating a premise Europe is bigger and better than any of its members. A Greek exit would raise the possibility of other European countries with high debts and non-existent or dismal economic growth suffering the same fate.
So question is, how much of a rocky ride will this cause and how long will it last? How long is a piece of string?
Hang onto your seats,