Greece’s central bank has issued an urgent plea to both sides to hammer out a deal, warning that the country could be forced out of the European Union. In a new report to the Greek parliament, the Bank of Greece said an agreement was now a “historic imperative”. Otherwise, the country risks being relegated to just “a poor country in the European South”.
It’s a chilling warning of the risks that Greece currently faces.
The Bank says:
Failure to reach an agreement would....mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country’s exit from the euro area and – most likely – from the European Union.
A manageable debt crisis, as the one that we are currently addressing with the help of our partners, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability. An exit from the euro would only compound the already adverse environment, as the ensuing acute exchange rate crisis would send inflation soaring.
And the impact on the Greek people would be desperately severe:
All this would imply deep recession, a dramatic decline in income levels, an exponential rise in unemployment and a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership.
From its position as a core member of Europe, Greece would see itself relegated to the rank of a poor country in the European South.
For that reason, the Bank said, the risk of a “credit event” (ie, a default), must be removed “once and for all”.
It also reported that around €30bn has already left Greek bank accounts since October, as the “dragging-on of negotiations” hit confidence.
That has:
...largely taken the form of cash withdrawals and hoarding, while flight of capital has also been recorded.
— Ioan Smith (@moved_average) June 17, 2015 #Greece | Deposits down to '04 levels...Comical Ali says still no bank runs here pic.twitter.com/IXl2y3bHDy
And if all that wasn’t bad enough, the Bank also predicted that the current recession will probably get even worse:
The deterioration of economic sentiment indicators and financing conditions in the private sector suggest that the slowdown of the economy is likely to accelerate in the second quarter of 2015, putting the economy at risk for a renewed bout of recession.
Poster Comment:
TC posted an exhaustive article on how local and federal "IOU" pension funds are near collapse. This update from the Guardian on the potential default of Greece to her German and French masters is an example of what happens to countries who overspend and use social programs as cash cows.
