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Posted July 10th, 2015 by Charles Purdy

What does the Greek situation mean for you?

In recent months, and especially the last few weeks, the situation surrounding Greece’s debts has come to the forefront, especially in terms of currency markets – and those making transfers to move abroad.

This issue originally began before the financial crisis, when the then Greek government borrowed a significant amount of money from their banks to pay public sector wages and keep the economy going. They, and it has to be said, their lenders, expected the economy to continue growing and bring in enough money to pay this back. The economic recession then happened, making it harder to borrow money because of the high interest rates, and harder to pay the money back as the Greek economy shrunk.

If the Greek government had been unable to pay their loans, they would have had to default – meaning the banks they borrowed from could end up going bankrupt. As all banks borrow, and lend money from each other, this would then cause other banks to go bankrupt – having a dramatic effect on the European economy. Eventually the European Central Bank (ECB), International Monetary Fund (IMF) and European Central Commission (ECC) issued emergency loans so that the country would stay afloat – in return for the Greek government introducing austerity measures, such as tax increases and pension cuts.

These austerity measures have caused Greece’s GDP to drop by around a quarter, along with devastatingly high unemployment rates, meaning difficulties for the country. Debt restructuring took place in 2012, but now that Europe as a whole is in better condition, the lenders are much less willing to make changes. They are also worried about the other countries with similar problems that could try to follow Greece’s lead, such as Portugal, Spain and Ireland. The Greek elections in January were won by the Syriza party – who campaigned on a pledge to rid Greece of austerity – and negotiations have been ongoing since the day of the election, with talks heating up as the IMF debt deadline approached.

With Greece not having the funds to make this payment, they have had to default.
As they are part of the euro, they cannot ‘print extra money’ to make the payment (only the ECB can make these decisions). In theory, this means that if Greece runs out of money, they MUST leave the euro, go back to having their own currency, and print money. All euros will be converted into the new currency, but as the government would print lots of the money, the population’s savings would become worthless. In recent months, many of the Greek population have been removing their money from the banks to ensure it holds its value in euro if the country does leave – which in turn has a negative effect on the banks themselves, hence this week’s bank closures.

The Greek population can now withdraw just up to €60 from all ATMS, although the Embassy of Greece in London has stated that anyone withdrawing funds with a foreign debit or credit card will not have to stick to this limit – although there is a question over whether there would be enough cash in the machines to fulfil requests. It’s also possible that some restaurants may refuse card payments and only take cash.

The ‘No’ vote in last Sunday’s Referendum, meant that the Greek population are not interested in accepting the proposals offered by the country’s creditors, and talks continue – with both sides offering concessions, but neither willing to offer too much. Both of the possible results on Sunday could have led to Greece living the euro, and we essentially currently continue in a ‘wait and see’ position. If you are particularly worried about the situation in Greece , use our easy-to-use quote page to see how it could affect your transfers.

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