Greece Default Nears

Greece has run out of funds and has failed to secure support from the European Union. As a result, the indebted nation may not make its payments for an International Monetary Fund loan due by the end of this month.

The Greek government must make payments worth around 1.6 billion euros, or $1.77 billion, in June, yet it lacks the cash in its own coffers to make those payments and pay civil servants and Greek government employees, which Prime Minster Alexis Tsipras said would receive primary attention over the debts.

“A High Price”

Greece has run out of funds and has failed to secure support from the European Union. As a result, the indebted nation may not make its payments for an International Monetary Fund loan due by the end of this month.

The Greek government must make payments worth around 1.6 billion euros, or $1.77 billion, in June, yet it lacks the cash in its own coffers to make those payments and pay civil servants and Greek government employees, which Prime Minster Alexis Tsipras said would receive primary attention over the debts.

“A High Price”

The Greek debt issue remains a politically controversial one, with northern European governments criticizing the former government for being profligate in spending money lent by German and French banks; Greeks and some economists respond that those banks failed to do their due diligence in issuing those loans, making them partly responsible. Additionally, some commentators note that the government that indulged in that spending has been voted out, replaced by the Syriza party who are seeking a balance between crushing austerity and the indulgences of the past.

That is Prime Minister Alexis Tsipras’s main argument in an editorial written for Le Monde, a French newspaper. In that piece Tsipras said Greece has “paid a high price for these mistakes; over the past five years the unemployment rate climbed to 28% (60% for young people), average income decreased by 40%, while according to Eurostat’s data, Greece became the EU country with the highest index of social inequality.”

Additionally, he notes that public debt has gone up to 180% of GDP and, “despite the heavy sacrifices of the people, the Greek economy remains trapped in continuous uncertainty caused by unattainable fiscal balance targets that further the vicious cycle of austerity and recession.”

Tsipras argues that he and his government has fought for a reasonable primary surplus that would offer greater growth potential while also providing the liquidity to pay back foreign debts.

The Prime Minister also admitted that Greece has been responsible for irresponsible behavior in the past, but that his government is seeking a more responsible policy through strict reforms. “The Greek side has accepted to implement a series of institutional reforms, such as … interventions in the product markets to eliminate distortions and privileges,” Tsipras said.

At the same time, Tsipras wrote a decidedly critical note on the value of the EU itself, hinting that the union is a threat to national democracy. On recent suggestions from the European Union spearheaded by the union’s president Jean-Claude Junker, who was recently caught on film slapping the Prime Minister of Hungary, Tsipras says the union is “displaying a total indifference to the recent democratic choice of the Greek people.”

Tsipras also warns that the EU is less of a symbiotic relationship between nation-states as it morphs into a power grab that harms smaller nations. “Judging from the present circumstances, it appears that this new European power is being constructed, with Greece being the first victim.”

Grexit Possibility

Economists remain largely split on the possibility of Greece exiting the euro, with many saying it is an economic inevitability and others noting that the geopolitical risks to Germany and the union itself are too great, making it a political, rather than an economic, issue.

Markets have shrugged off the issue, with Eurozone stock indices rising between 0.5% and 0.7% as the Purchasing Manager Index for Europe published by Markit Economics showed a small growth, from 52 in April to 52.2 in May.

Deflationary trends, however, have not halted in the Eurozone, with output prices falling to 50 from 50.1, according to the index.