The Global economy remains fragile 7 years after the Global Financial Crisis in 2008. On Monday, crude oil futures fell to a three week low as Greece’s economic crisis prolongs into July 2015. Notwithstanding this, the Euro has remained relatively firm against other bench mark currency while the exchange rate of smaller lesser developed economies including those from the Caribbean and Latin America continue to gradually weaken against the benchmarks. Iran has opened new negotiations to export more oil to the west. Increasing the supply in an already oversupplied market, should have further price reduction implications. Highly indebted nations for example Jamaica and Greece continue to find it difficult to maintain their debt on a sustainable path while growing their economies at the same time. Accumulated debt is associated with high debt servicing requirements which has placed Greece at the forefront of international economic discussions presently.
What is the current situation in Greece?
Tension continues in negotiations between Greek officials and the EU in several aspects. Similar to Jamaica, Greece accumulated high volumes of debt and has been having difficulties servicing it. They have constantly relied on sympathy from the EU and discretion from the IMF. Now there is international speculation that Greece might default on $1.6 billion in debt servicing to be paid to the IMF. Last week talks between the Greek Prime Minister and EU officials broke down as he rejected the austerity measures tied to the disbursement of the bailout funds. Greek’s Prime Minister also urges his citizens to support a referendum to leave the EU zone and revert to using their original currency. Although the polls are saying he might lose as majority of Greeks favour the Euro zone rather that operating independently.
What is the situation on the ground?
On Monday, several Banks and ATM machine were closed due to severe liquidity problem in the country. Greece’s financial crisis is deepening and there is speculation that banks might remain shut until July 7th, 2015. Quantitative restrictions have been place on withdrawals as ATM’s are only dispersing $60 to each citizen per day. Tourists vacationing in Greece have been told that the ATM limit does not apply to them, but some ATM machines might not be able to tell the difference between and local and foreign credit cards. Local Business owners claim that their business are benefiting from tourist coming in with extra cash; over the last month they have been spending more and have been tipping higher for services received; tips have increased by more than 40%.
What is the implication of this?
The Global economic landscape remains fragile as investors, consumers, producers and governments worldwide desperately try to find the right balance of actions/policies that will restore economic stability and increase economic performance in each country. The situation with Greece will not be over any time soon as the pros and cons associated with staying in or leaving the Euro Zone must be critically analyse and presented to the citizens before the referendum is finalised. Greece must come to an understanding with the IMF and the EU in negotiations regarding servicing their debt. They have already received several bail outs and debt relief because it was perceived that their failure would threaten the strength of the Euro zone and the value of the Euro. However difficulties with debt servicing and liquidity problems might see them leaving the euro to stand alone once more.
What is the difference between them and Jamaica?
Even though, Jamaica is a part of CARICOM, a very disjointed economic union, with no common currency and the lowest intra regional trade among all the economic blocks in the world. Jamaica has been somewhat successful in accessing funds from the IMF and other international lenders due to the discipline it has demonstrated in implemented reforms and maintaining certain fiscal targets. However, wage negations is a constant dilemma between public sector workers and the government as austerity measure have strangled the spending power of the populace weakening consumer demand and impacted output negatively. The threat of foreign currency shortages after the end of IMF agreement in 2017 lingers, since Jamaica has not seriously found an intrinsically generated source of foreign currency flows. Greece has received much support from the strength of the Euro zone which is one of the largest trading blocks in the world.