It seems like the EU, the UK, and the rest of the world have spent years breathlessly awaiting good news on the Greek economy, and for good reason. The current negotiations represent the third time that Greece has sought a bailout since 2010. If history is an accurate predictor, there is little reason to believe that the phrase, “third time’s the charm” applies. As a matter of fact, on June 30 of this year, Greece earned the distinction of being the first developed country to fail to make a payment to the International Monetary Fund (IMF). And this time around, the stakes are astronomically high. Put simply, Greece has to come up with 86 billion Euros (60 billion pounds) in new loans in a matter of hours if it is to make a payment to the European Central Bank by Aug. 20. The IMF is of the opinion that the bailout amount would have to be even larger – some 90 billion Euros – before Greece can hope to emerge from its crippling debt.
Add to the sheer magnitude of the country’s indebtedness the inevitable pushback in response to even the mention of additional austerity measures, and the country does appear to be teetering on that fine line between recovery and chaos. The tension is palpable, if not in the tourist resorts, then definitely in the financial industry, both in Greece and across the European continent. But what does this all really mean to UK bankers and their customers?
Is a Grexit (and even a Brexit) imminent?
There is some speculation that Greece might decide, even after obtaining bailout funds, to remove itself from the EU (Grexit), in part as a rejection of the extreme austerity measures that other EU members – most notably Germany – wish to impose upon the country. Concern over this, combined with a widespread anger at the cost to other member countries of the bailout, could well inspire some of those other member countries, including the UK, to remove themselves from the EU (Brexit) as well. Prime Minister David Cameron is under great pressure, and has promised to submit an official referendum about Britain’s plans for future association with (or disassociation from) the EU by year’s end 2017.
The Euro could take a hit, even after a bailout
Exit from the EU by both Greece and the UK would no doubt have a profound effect upon the other member nations’ willingness to remain. Though the UK has little exposure to risk in the event of a Greek default or exit from the EU, it could face additional ramifications. Brussels could well demand payment on Britain’s share of a nearly one billion pound short-term loan made to the Greeks, and Chancellor George Osborne is vehemently opposed to further British contributions to the bailout. Other member countries are no doubt feeling similar pressure to not send good money after bad. It is doubtful that the worst-case scenario – a dissolution of the EU – would come to pass, but even worry over its future viability is bound to affect the financial policies of member nations, and by extent, their banks. At this point, the UK is likely breathing a sigh of relief at its decision not to abandon its own currency in favor of the Euro.
British taxpayers’ risks are unknown at this point
Britain, despite not actually being a EU member, pays roughly 14% of the EU budget. As such, British taxpayers would be liable for roughly £850 million of the 8.6 billion Euros lent to Greece, should the country default on its loan, were it not for a binding agreement obtained by Mr. Cameron that specifically excluded it from such participation and exposure. Whether the UK would take such a hard line stance should Greece remove itself from the EU is unsure, as is the British taxpayer’s degree of exposure in the foreseeable future, Treasury’s commitment notwithstanding.
To the average British taxpayer, the best advice is to keep a keen eye on the events in Greece and the EU as they unfold, to do proper research to determine the effects of those events on the UK economy, and to seek the most beneficial source of future loans. Rates and availability of funds may well be a good indicator of the country’s financial health, and by extension, the financial health of the individual.