The Eurozone, on the other hand, is at the edge, facing a tough question whether or not to bail out Greece-their weakest link. Certainly, the country will default on its debts.
The early symptoms
With a week-long closure of banks and markets throughout the country, the situation went from bad to worse. With the Eurozone members pressurizing Greece to take a decision-whether to get bailed out or exit the communion-Greece is on tinterhooks, thinking about the economy on the whole.
Prime Minister Alexis Tsipras interrupted last-ditch debt negotiations early on Saturday failed convince the participants, which leaves them just one way- to listen to the strict rules that the other members have placed on the table in return for a bail out.
The conditions that have been placed include:
- Increasing the retirement age
- Cutting down interest rates
With growing unemployment and staggering economy, the country has been experiencing an economic crisis since the 2008 meltdown and the journey has always been downwards.
It was earlier bailed out in 2010 by its Eurozone partners, but this time things have turned serious with the members willing to extend the deadline for another 6 months only if Greece followed the regulations laid down by them.
Greece is now facing the wall now with the European Central Bank informing that it would not extend an emergency loan program. However, it will not cut off the support entirely, so that Greece gets some flexibility in the coming days.
Greece debt and the global crisis
With the debt crisis beginning in 2010, international banks and financial investors had pulled out their Greek bonds and other holdings, rendering them insulated from the Greek economic changes.
Private investors who did not pull back, however have hard times ahead. The other countries in the Eurozone-Portugal, Ireland and Spain-who are debt ridden have taken steps to overhaul their economies and are less vulnerable now.
The European Central Bank has built firewalls by buying Eurozone government bonds and promising to buy even more if required. This has made the participating governments less affected by the market risks.
Despite that, Greece's crash is believed to create ripples, that cannot be predicted until the last moment even though early symptoms of a crack in the Euro valuation is visible, which has dropped sharply in early trading in Asia on Monday. With the shutting down of Greece's ailing banks to avoid further harm, the cash withdrawal has been limited to $66 per day and people with cash and credit issued in other countries have been exempted from the withdrawal limit.
'Eurozone' in jeopardy? not affordable
Grexit or Greece's exit from the Eurozone would not only be disastrous for the country, but for the world. While Greece may find itself as an international outcast in the world market, it will be particularly harmful for the concept of the 'Eurozone'.
The 'Euro' serves as a purpose to unite divided countries after years of war. So, one fall o ut will have a hard impact as investors would fear that larger countries may also abandon the currency union on tough times and trust in the common currency could be gone.
Tilford of the Center of European Reform said,"Clearly, once a country leaves a currency union, that currency union becomes to all intents and purposes an exchange-rate mechanism, not a currency union." He further added,"If they do force Greece out, there's a very real risk of contagion at the next downturn."
Global leaders are worried about a political turmoil too. For example anti-Eurozone parties like France's National Front would have a political advantage for the crisis over the ruling party, Germany's Angela Merkel may also lose out on voters for letting out on Greece.
US President, Barack Obama had once voiced his concern over the Grexit, saying that this could lead to Greece taking the aid of Russia.
Greek Prime Minister, Alexis Tsipras had hinted to sever ties with the union over Russia's actions in Ukraine. MOreover, it also doubles as a NATO member, which could also be affected. Wolfgang Ischinger, a former German ambassador to the US, explains the dilemma,"If Greece leaves, I'll bet you that in Moscow, this will be seen as confirmation of the Russian theory that the European Union is in decline and about to fall apart."
India may not be spared
If the value of Euro goes down, trade between the member countries and India would be largely affected. The uncertainity may lead investors to Gold and Dollar to be on the safer side. This, in turn would make dollar stronger as compared to Indian rupees, which in turn would make imports expensive and exports cheap. Likewise, oil prices would be affected.
As the clock ticks by, the world waits in apprehension of an approaching upheavel in the world economy. But whether or not it will turn into a chain reaction leading to a complete meltdown is yet to be seen. Till then, investors pray the Eurozone lives and Greece is bailed out with flexible terms...yet again.