Will Greece exit the Eurozone? Tensions high after Greek government issues referendum on bailout. AFP.

Greek citizens wait in line to withdraw money from their bank. Yahoo/AFP

Greece is coming much closer to exiting the Eurozone after the latest bailout offer was put up for referendum. AFP. The referendum is scheduled for July 5th and will ask the Greek people if they wanted to agree or disagree with the Greek creditors demands for debt repayment. Leftist Greek Prime Minister Alexis Tsipras rejected the latest debt deal because it would involve austerity. Eurozone finance ministers were not impressed with that and without further action by the end of the month, Greece will default on its $1.7 billion payment to the International Monetary Fund. Though it is unclear if Greece will leave the Eurozone, if Greece fails to get a bailout the damage to the economy will be severe. Polls show that many Greek citizens support a deal with the creditors. News of the breakdown of talks lead to a run on Greek banks as citizens desperately took their money out due to fears that the banks would close next week. 

My Comment:

I don't usually cover economic issues on this blog because my knowledge of economic issues is elementary at best, but it's clear that this is an ominous development. Greece has long been underwater when it comes to it's debts. From what I understand it is due to a combination of rich Greeks not paying taxes, an extremely generous social welfare state and the damage caused by the economic collapse of 2007 and 2008. Since Greece is part of the European Union, any default of their debt could bring the Euro to its knees. 

So why care about Greece? Well local economic issues tend to have a ripple effect through the world economy. If the Greeks can no longer afford to buy anything because their banking system has collapsed it will hurt anyone and everyone that trades with them. Also, economic collapse is a large factor in causing conflict throughout history. Though warfare is unlikely, it could push countries that are on the edge over the brink. It may also make lenders less likely to lend money to governments that are unstable or have bad economies. 

None of this is surprising. Greece has been spending far too much money. Not only do they have a bloated and inefficient welfare state, they also spent millions on their military to counter the threat that Turkey has always held for Greece. Any sane country would have made cuts after their debts were larger then their income. But Greece did the exact opposite. 

When push came to shove, Greece doubled down and voted in a government that we even further to the left then what they had before. Their ruling party, Syriza, is so far to the left it isn't much of a stretch to call them communists. Well, we all know how good communists are at running economies. The Greek people are going to get what they voted for. 

As for the rest of the world, I don't think this will match the crisis of 2007 and 2008 if no deal is made. And it's important to note that it is still possible that the crisis will end. Much like the "fiscal cliff" debate here in America, these things tend to work themselves out at the last moment. I think there is a chance of it happening here. But if it doesn't expect the financial markets to take a hit and for Europe to be a lot less secure economically then it once was.