Greece and the global economic challenge
What is the state of the global economy?
The global economy remains fragile, seven years after the 2008 global financial crisis. On Monday, crude oil futures fell to a three-week low as Greece's economic crisis prolongs into July 2015.
Notwithstanding this, the euro has remained relatively firm against other benchmark currencies, while the exchange rates of smaller, less-developed economies, including those from the Caribbean and Latin America, continue to gradually weaken against the benchmarks.
Iran has opened new negotiations to export more oil to the West. Increasing the supply in an already oversupplied market should have further price-reduction implications.
Highly indebted nations - for example, Jamaica and Greece - continue to find it difficult to maintain their debt on a sustainable path while growing their economies at the same time. Accumulated debt is associated with high debt-servicing requirements, which have placed Greece at the forefront of international economic discussions presently.
What is the current situation in Greece?
Tension continues in negotiations between Greek officials and the European Union (EU) in several aspects. Similar to Jamaica, Greece accumulated high volumes of debt and has been having difficulties servicing it. The country has constantly relied on sympathy from the EU and discretion from the International Monetary Fund (IMF). Now, there is international speculation that Greece might default on €1.6 billion in debt servicing to be paid to the IMF.
Last week, talks between the Greek prime minister and EU officials broke down as he rejected the austerity measures tied to the disbursement of the bailout funds. Greek's prime minister also urged his citizens to support a referendum to leave the EU zone and revert to using the country's original currency. The polls are suggesting he might lose, as the majority of Greeks favour the Eurozone rather that operating independently.
What is the situation on the ground?
On Monday, several banks and ATMs were closed due to a severe liquidity problem in the country. Greece's financial crisis is deepening and there is speculation that banks might remain shut until July 7. Quantitative restrictions have been placed on withdrawals as ATMs are only dispersing around €60 to each citizen per day. Tourists vacationing in Greece have been told that the ATM limit does not apply to them, but some ATMs might not be able to tell the difference between and local and foreign credit cards.
Local business owners claim that their businesses are benefiting from tourists coming in with extra cash. Over the last month, they have been spending more and have been tipping higher for services received; tips have increased by more than 40 per cent.
What is the implication of this?
The global economic landscape remains fragile, as investors, consumers, producers and governments worldwide desperately try to find the right balance of actions/policies that will restore economic stability and increase economic performance in each country. The situation with Greece will not be over anytime soon as the pros and cons associated with staying in or leaving the Eurozone must be critically analysed and presented to the citizens before the referendum is finalised.
Greece must come to an understanding with the IMF and the EU in negotiations regarding servicing their debt. The country has already received several bailouts and debt reliefs because it was perceived that its failure would threaten the strength of the Eurozone and the value of the euro. However, difficulties with debt servicing and liquidity problems might see it leaving the Eurozone to stand alone once more.
What is the difference between Greece and Jamaica?
Jamaica is a part of CARICOM, a very disjointed economic union, with no common currency and the lowest intraregional trade among all the economic blocs in the world.
Jamaica has been somewhat successful in accessing funds from the IMF and other international lenders due to the discipline it has demonstrated in implemented reforms and maintaining certain fiscal targets. However, wage negotiations are a constant dilemma between public-sector workers and the Government as austerity measures have strangled the spending power of the populace, weakening consumer demand and impacting output negatively.
The threat of foreign-currency shortages after the end of the IMF agreement in 2017 lingers, since Jamaica has not seriously found an intrinsically generated source of foreign-currency flows.
Greece has received much support from the strength of the Eurozone, which is one of the largest trading blocs in the world.
- Dr Andre Haughton is a lecturer in the Department of Economics on the Mona campus of the University of the West Indies. Follow him on Twitter @DrAndreHaughton; or email feedback to email@example.com.