In a dramatic turn of events, Greece formally defaulted on a $1.7 billion payment to the International Monetary Fund, early Wednesday in Athens. Becoming the first developed country to default to the IMF, an organization of 188 nations that tries to keep the world economy stable, it will now be cut off from access to resources until the payment is made.The country made a desperate attempt on Tuesday, to halt its plunge into economic chaos by requesting a new European bailout, its third in six years. However, this bankrupt country is reported to be asking for 29 billion euros, and in the light of its previous record, an amount that does not seem fair or practical to begin with. Greece rejected the conditions Europe and the IMF set for releasing the remaining billions from its existing bailout at the weekend, and now is on its own financially. The question that must be asked is what these histrionic circumstances mean for the EU, and ultimately the rest of the world?
It is said that any third bailout from Europe would take time to negotiate, where without a huge shift in the Greek government’s position; a new round of talks may prove just as fruitless as the last. What any common civilian of this country should be wary of is that a withdrawal from the European Union will have a devastating impact on the already shattered economy. Asset prices will plummet, inflation will soar and unemployment will be rampant. In terms of a pure cash effect, Greece’s exit will crystallize losses on all outstanding loans from EU nations, currently standing at about 331 billion euros. With the default, and being forced out of the Eurozone, countries such as Germany and France would have to write off Greece’s debt.
Many are debating, whether this default can actually plunge Europe into a crisis. While its debts are substantial, alone they are not enough to create this havoc. But it can also be said that this very same argument was used in 2007, when the US’s economy began to implode. All these markets do have global linkages which does expose, if not all, but most of the countries. There is also the prospect of contagion, that other European nations could follow Greece and fall short of repayment commitments. If that happens, the EU would surely collapse, with no probable solution to save it.