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Greece on the Brink. How Will the World Respond?

July 2, 2015
Plain English Version
Greeks crowd banks just before they close for a week.

Greeks crowd banks just before they close for a week.

Franklin D. Roosevelt became President of the United States during the Great Depression of the 1930s. In his first speech he said, “The only thing we have to fear – is fear itself.” He meant that people should not act out of fear. Rather, they should stay calm and look at the facts.

The Greek economic meltdown brings this to mind. Greece is broke. Other governments and investors may panic. Big investment funds might try to sell off their holdings in Greek bonds. Everyone in Greece and elsewhere might try to get their money out of Greek banks.

Greece cannot pay the total amount of money it owes to its creditors. It cannot pay even the interest that is due. It may not be able to work out deals with the banks and other countries about paying its debts.

Greece is part of the European Union. Its currency is the euro. It may have to return to its old currency called the drachma.

Greece wants other countries to give them more credit or extend the loans. The other countries and banks want Greece to cut spending on pensions and collect more taxes from its people. Greece is famous for not collecting taxes.

If Greece leaves the European Union and the use of the euro, all bets are off. No one knows what will happen. Will drachmas printed by Greece have value? The price of goods made in Greece will go down. That might help bring in some money from exports.

Back to fear. Greece will suffer no matter what. Will the financial world panic? Will banks call in debts from other countries in financial stress? Will stock prices collapse worldwide? Greece may have a vote by the people on which way to go this Sunday.

The Greek economy is just a small fraction of the European economy. It is smaller than some U.S. cities. If markets stay calm and leaders lead rather than panic, experts say the world will be able to manage the Greek meltdown.

Source: The Wall Street Journal July 1, 2015

 

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