How did it come to this, asks Ian Taylor, as Athens’ standoff with the IMF, EU and Europe’s central bank reaches its climax
The endgame for Greece and its financial crisis has been coming so long you could be forgiven for thinking it might never reach this point.
But arrive it has, possibly today, and no one responsible for clients about to travel or in Greece has much excuse for not having a contingency plan in place.
Eurozone leaders were due at an emergency summit in Brussels today, billed by the Financial Times (FT) as “a last-ditch attempt to prevent Greece defaulting on its debts and crashing out of the EU’s common currency”.
Depositors withdrew €5 billion from Greek banks last week, €1.5 billion on Friday alone. In response, the European Central Bank (ECB) made available €1.75 billion in emergency funds.
The FT noted this was “only enough support to last until the end of Monday”. So today is the day. Without a deal, a bank run is certain – leading banks to shut and cash machines to close.
The imposition of capital controls to stop the haemorrhage of money would follow. A Greek departure from the Eurozone would then appear the only option.
The Greek government of Alexis Tsipras and the troika of International Monetary Fund (IMF), European Commission and ECB may as well be holding guns to one another’s heads in a scene reminiscent of a Quentin Tarantino movie.
Why, you might ask? Is one side or both stupid?
Tsipras accuses the troika of “pillaging” Greece for five years and refuses to make the further cuts in pensions and jobs demanded of him.
His government was elected in January on the basis that it would stand up to the troika and refuse to further degrade the public sector, pensions and welfare.
Greek pensioners have suffered 10 successive cuts, halving the value of their pensions, and the EU and IMF seek a hefty eleventh.
One million public sector jobs have gone among a population of 10 million. Youth unemployment stands at 40% nationally. The suicide rate jumped 35% in two years.
IMF-EU imposed austerity has left Greece on a par with Germany in 1930. Millions of Greeks must feel things could not be worse.
So Tsipras has little choice if his government is not to fall.
But the crisis that follows a failure to cut a deal could bring down the government anyway. Indeed, this may be the endgame the IMF and EU envisage.
IMF chief Christine Lagarde ruled out any grace period, saying: “I have a deadline, which is June 30, when a payment is due. If on July 1 it’s not paid, it’s not paid.
“It [Greece] will be in default. It will be in arrears vis-a-vis the IMF on July 1.”
Lagarde displayed the depth of animosity in the negotiations when she said at the end of last week: “The key emergency is to restore a dialogue with adults in the room.”
Tsipras and his colleagues would be entitled to point out she has a nerve given the performance of her predecessor as head of the IMF, Dominique Strauss-Kahn stood down in 2011 over allegations of sexual abuse.
The sums the troika and Greece are arguing over are not huge, certainly not by comparison with the bail-outs of banks and central bank stimulus of economies in recent years.
In the UK, the National Audit Office calculates the “total peak support” to UK banks at £1,162 billion. As of 2013, the total European financial aid guarantee to banks was €5.1 trillion (i.e. thousand billion).
The ECB launched a €1 trillion bond buying or quantitative easing programme in March, injecting €60 billion (£44 billion) a month into euro-zone economies until September 2016.
By contrast, Greece is due to repay the IMF €1.6 billion (£1.15 billion) on June 30, when it is also due €7.2 billion in bail-out funds (from which it could make the payment).
The sticking point is the troika demand that Greece make a further €2-billion-worth of cuts in social welfare.
The FT reports Tsipras “has privately told EU leaders he wants to reach a deal”. So maybe someone will blink. But it’s increasingly likely someone will pull a trigger.
The Greek central bank warned last week of an “uncontrollable crisis” in the country. But the stakes are also high for the EU.
The FT noted on Friday: “Greece’s departure [from the Eurozone] would be a historic failure; an admission of the fragility of the European enterprise and a signal to the world that the process of integration could yet unravel.”
What does it mean for holidaymakers to Greece?
In the short to medium term, take enough cash and cards to manage without needing to use an ATM or visit a bank.
Abta’s advice to take “plenty of cash and a mix of other payment methods” is pretty much all people need do. Sterling and euros will more than hold their value.
The travel association said last week: “We do not anticipate there will be any need for tour operators to rebook customers to a different destination.”
That may also hold true. The Sunday Times was surely scaremongering yesterday when it reported: “Plans are in place for the evacuation of British tourists from a country at risk of food shortages and civil unrest.”
However, there will be people who prefer to go elsewhere and companies will need to respond.
The Sunday Times was less apocryphal in reporting: “Some hotels are considering distributing euros to tourists if cash machines run dry.” That seems sensible.
What of the wider fall-out?
Europe’s leaders insist all is in much better shape to handle a Greek exit from the euro than two or three years ago.
That is undoubtedly true, and a Grexit need not trash the holiday market. Inflation may rampage, wiping out livelihoods as Greece returns to the drachma, but tourists and tour operators would enjoy falling prices.
However, the argument is also overblown. Once one country quits the euro, there is no reason another might not follow.
A crisis in any euro-zone country will immediately make it ‘the next Greece’, with Italy already touted as a potential candidate.
The markets can be expected to dump investments in weaker economies – Portugal, Spain, the euro itself. Whatever happens, do not expect a resolution of the crisis.