Reasons Why the Greek Financial Crisis Might Still Explode

Jeremy Biberdorf |

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If you’re following the Greek Financial Crisis, you know that negotiations are on the table. In order to remain in the EU, Greece is going to have to adjust pensions and raise taxes. In return, they’ll get $94 Billion in bailout funding, enough to allow Greece to open up the rest of their banks and remain a first-world nation. Greek Parliament has agreed to the negotiations, provisionally, but these requirements don’t sit well with the radical left-wing government, especially Prime Minister Alexis Tsipras. Tspiras and his left-wing government has had to sideline idealistic touchstones and a good amount of national autonomy in order to remain in a network of states they don’t totally want to be a part of. See how things might still go bad?

Many Americans are not totally aware of the situation. Perhaps you noticed a sudden downturn in your Betterment IRA. Perhaps your financial advisor has been recommending US-based investments for a while. Maybe your holiday plans to Athens had to be changed. But however you noticed the bad news from the EU, here are a few considerations to make when trying to formulate an informed opinion on the subject.

Greece will Likely Default on Future Payments

If we know anything from history, it’s that large economies do not tend to recover when they are strapped with debt. Greece is completely laden with the stuff, and there are very strict terms within which they must pay it back. Their economy is still in tatters. Their entire system of government is in question. The populace doesn’t trust the banking system or, increasingly, their leaders. Increased income tax is unlikely to buoy the nation’s finances enough, or for long enough, to cover stringent repayment policies. It isn’t hard to imagine Greece defaulting on these payments in the not-so-distant future.

Greece is Giving up Control

It’s hard to be radically left-wing if, according to an agreement you made with the European Union, your nation must radically restructure its public works system. Public services is what got Greece into trouble in the first place. Radically expanded to a fallout point that is disturbingly close to the 2008 financial crisis, Greece’s public services remain bloated and largely ineffectual. Forced to adopt strict policies in the past (like firing 9 out of every 10 employees), the Greek public service industry is still in a bad way. Ideologically speaking, it is necessary for a leftist nation to really be leftist. But practically, it’s very hard to Greece to have both a robust public service climate and a space in the EU. Any rise in nationalistic feeling during the next decade could bring matters back to crisis.

So we’re left with the fact that we simply don’t know how things are going to turn out in Greece. Economics, public sentiment, leadership shuffling, and plain old politics all make this a very volatile situation. Plus, there are plenty of Greek people, some of them in power, who think it would be better for Greece to abandon the EU, no matter the cost. Whatever happens, it’s going to be an interesting next couple of years for Greece, and the rest of world to which their financial structures are tied. 

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