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Grexit could be more dangerous for EU than for Greece

By Martin Quick

This month, the Syriza-led government is due to pay off nearly 7 billion from its debt, with €1.5 billion going to the International Monetary Fund and the rest being used to pay off short-term bills. This figure increases in July.

Greek debt to be paid off
Greek debt to be paid off

The country has an enormous mountain to climb if it is to reach its monthly target. IMF chief Christine Lagarde has warned Greece that if payments due on 30 June are not received, the country will plunge into default.

Default, for Greece, could make things much worse on the social scale. It would lead to a lockdown from banks, that would prevent anyone from recovering their savings, as millions if not billions have already been withdrawn. However, despite any potential lockdown enhancing the country’s chances of meeting monthly financial targets, it would also lead to deepening concerns for its population.

Unemployment rates in Greece are staggeringly high, currently at around 25% and going into default will only increase this figure. Families are financially torn apart. Those with out of work parents rely heavily on support from grandparents, who until recently had been able to retire from the early age of 57 - even earlier for the numerous civil servants.

However, with the government desperately scrambling for money, radical cuts of 40% have been imposed on pensions. This means that hard pressed families are no longer able to help their elders who now find themselves with no income. 

Greek Prime Minister Alexis Tsipraswith German Chancellor Angela Merkel
Greek Prime Minister Alexis Tsipraswith German Chancellor Angela Merkel

The growing issue for Greece is that by going into default and subsequently driving families into further financial struggles, there will less public spending on goods and services therefore decreasing the monetary flow to the economy.

The government finds itself sandwiched between humanitarian and financial needs, and an exit from the EU might be the only option. 
But even if Greece were to become the first country to leave the Union, it would stumble into what can be only seen as similar economic conditions.

Leaving the EU would mean losing the single European currency. Greece would therefore have to create a new currency, a possible return for the drachma, replaced in 2002.

After its re-appearance - if the drachma was to be re-introduced - the new Greek currency would start off at around the same value as the euro. However, considering the country’s current state and its need for investment in many sectors, it would receive virtually no support from external investors, causing a dramatic decline in its value.

For Greece, leaving the EU will only mean that it has greater control over its currency, not that economic conditions will get any better.

But Greece leaving the EU and therefore dropping its use of the Euro will also have consequences for other members of the Union which have invested billions attempting to salvage the Greek economy.

Since 2010, Germany has contributed €56 billion to Greece’s economy, with France paying over €42 billion. A “Grexit” would lead to huge financial black holes for both nations, as they both have high external debts.


French banks

German banks

Greek Banks

Italian banks

EU banks

Greek Debt

11.9€  billion

9.2€  billion

82.2€ billion

3€  billion

111.1€  billion

% of total debt (360€  billion)






France’s external debt (as of 2014) stands at 222% of its GDP, or $5.75 trillion. As for Germany its external debt is the equivalent of 145% of its GDP, or $5.55 trillion.

One of the reasons why countries such as Germany and France are so desperate to keep Greece in the EU is that it is in their own financial interest.

Furthermore, with Greece potentially being the first member to leave the Union and the UK on the verge of holding an in-out referendum regarding its position the Union could lose international standing as its image of an increasingly integrated European market is coming under attack.

Were there to be a “Grexit” many predict that Vladimir Putin’s Russia would step in to support the overly indebted nation. This would give the Kremlin a foot in Europe, increasing trade links between itself and Greece and using the latter nation as a pathway for further influence in the continent, something other member states categorically want to avoid.

But for Greece, disregarding the interests of neighbouring nations could be the only viable option. Considering its current state, the euro and membership of the EU does not seem like a valid alternative.

But for external investors, such as France and Germany, everything is still very much in the balance, for their own interests but also for the European Union as a whole.

One thing is clear the Greek saga continues...


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