Greek Tragedy strikes the Free Market Economy! Palash Biswas

Greek Tragedy strikes the Free Market Economy!

Palash Biswas

Greek tragedy is a form of theatre from Ancient Greece and Asia Minor. It reached its most significant form in Athens in the 5th century BC. Greek tragedy is an extension of the ancient rites carried out in honor of Dionysus, and it heavily influenced the theatre of Ancient Rome and the Renaissance. Tragic plots were most often based upon myths from the oral traditions of archaic epics. In tragic theatre, however, these narratives were presented by actors. The most important authors of Greek tragedies are Aeschylus, Sophocles and Euripides.

Bank runs and bank closures evoke fear in most investors. It is, therefore, completely understandable that investors are panicking over the events in Greece.But this is something other than banking.It is all about the mismanagement of IMF to sustain Dollar hegemony.

India has to be afraid as we are linked to Dollar Hegemony and the Ruling class caste hegemony of absolute fascism has not left any way whatsoever for a great escape.

Name your angle on Greece. Eikon offers more insight, analysis and up-to-date news on the crisis than anyone else: http://tmsnrt.rs/1GMys3U

I spent my younger days to understand Greek Tragedy as a student of literature.Now,we have to understand Greek tragedy all over again and it happen to be the economic crisis shaking all the dices of the Global Free Market economy which would hit us more than RBI Governor speaks out.

It is more serious an affair as it had been in 2008. Not resilience of the Indian economy,as it was claimed then,we were saved that the basic structure of the economy were intact even then and we had not been linked to market as we happen to be now.

Long long way we have traded since then to dismantle the production system and the economic structure all on the name of growth and development.Thus ,we face a danger ahead,a repeat of the infamous Bengal famine as everything has been handed to the market with merciless ethnic cleansing which is all about the economic management by the agents and super agents of foreign capital and foreign interests under business friendly development,making Gujarat in.

According to India Ratings and Research (Ind-Ra), Indian corporates might face higher borrowing cost in the overseas market in short-run due to the Greek debt crisis.

It is official,although Indian companies have limited direct exposure to Greece, they may feel some pain in the short-term since a slew of them have been tapping international markets for cheaper funding relative to home country, it added.

Indian firms raised foreign capital of $13.4 billion in 2014-15 and cost of such borrowing may now go up. Ind-Ra expects increased global market volatility to weigh on the rupee in the near-term.

However, record-high forex reserves at $355 billion will provide a cushion against sharp volatility. "India's direct exposure to Greece through external trade is minuscule.

A contagion effect may lead to a 'risk off' scenario, increased volatility and capital flight. The biggest single-day debt outflow from the Indian market was $2 billion on September 17, 2008, post Lehman's collapse," it said.

Contagion risks, however, are restricted this time due to the low privately held and overseas debt in Greece, it said, adding that euro may weaken against the US dollar.

Indian rupee is likely to track the interplay between US dollar strength and commodity price fall. The impact of currency movements on India's current account will depend on the interplay between currency depreciation and decline in commodity prices, Ind-Ra said.

If currency depreciation exceeds the decline in commodity prices, the current account may worsen. This, along with a possible decline in pace of capital inflows, may affect currency, it added.

However which matters most than the Indian context and reference it is an unprecedented opportunity to make money for those for whom the bell tolls.Hence the simple logic of Indian Economic Desh Becho Brigade might be that Money managers on Wall Street are betting that Greece's debt crisis will not blow up into an international financial calamity, despite global share markets plunging on Monday.

Professional investors in the United States expressed confidence there would be limited contagion if the Greek government defaults on its debts, saying European banks and other eurozone countries were much better placed to weather any fallout than at the height of the euro crisis in 2011.

International investors have been preparing their portfolios for the worst-case Greek scenario, unlike before the shock implosions of US investment bank Lehman Brothers in 2008 and bond fund Long Term Capital Management in 1998. Their meltdown smashed financial markets.

Indian Express reports:

Talks between Greece and its three creditors, the European Central Bank, the International Monetary Fund and the 18 other eurozone countries, on the terms for extending Greece's bailout programme beyond June 30, broke down over the weekend. On Saturday, Greek Prime Minister Alexis Tsipras announced a referendum, scheduled for July 5, on the troika's terms — changes in pension and taxation structures, etc — but the country's creditors have refused to extend the bailout till then. However, Greece, which cannot access capital markets and has been relying on money from the troika to pay its debts and bills, needs to repay the IMF 1.6 billion euros on Tuesday, or fall into default. Now, with a run on the country's banks gaining momentum and the ECB capping the emergency funds available to them, the government has decreed that all banks down their shutters and ATM withdrawals be capped at 60 euros per day. Eventually, if Greece has to print its own money to pay salaries and pensions, it would have to leave the monetary union. But Greece doesn't seem to be a Lehman, and the threat of contagion to the eurozone and the world seems limited. For one, most Greek debt — about 80 per cent — is owed to "official" lenders; it isn't held by the public or financial firms at large. Further, it's vanilla debt, not an alphabet soup of collateralised derivatives that had, in 2008, seeped into practically every corner of the global financial system. Back then, no one knew who was holding how much toxic debt, but this time, the chances of a domino effect getting set off by a Greek collapse are few. The eurozone, too, is better armoured to deal with a crisis — its banks are better capitalised and a large bailout fund has been established. Even though the 10-year government bond yields of Portugal, Spain and Italy, for instance, spiked sharply on Monday — volatility is inevitable — Germany, the eurozone's heavy lifter, has indicated that it will "do everything to prevent every possible threat of contagion". There are lessons to be learnt for India: Be cautious on foreign debt, which can reverse quickly. In 2013, when there was a near run on the rupee, it was because foreign portfolio investors had dumped government debt and moved on to greener pastures. The Greece story calls for caution on external commercial borrowings and short-term portfolio debt. It underlines that it pays to be prudent. - See more at: http://indianexpress.com/article/opinion/editorials/greek-tragedy-2/#sthash.2gS0GMkC.dpuf

The Greek crisis: 9 questions you were too embarrassed to ask

Updated by Dylan Matthews on June 30, 2015, 9:22 a.m. ET

account, is back where it was in 1985. The poor are back where they were in 1980. And this weekend, things hit a new low, as fear of a total financial meltdown grew so widespread that Greeks emptied over a third of the country's ATMs on Saturday in a desperate attempt to pull out as much money as possible before the banks collapse.

The crisis is at a pivotal moment now, but it has been brewing for years. Despite what you may have heard, it's not happening because the Greek government spent beyond its means and now is suffering the consequences. It's happening because Europe isn't sure whether it wants to be one country or many, and has in the meantime adopted policies that have created a humanitarian catastrophe for the Greek people.

1) What, in as few words as possible, is happening in Greece?

Milos Bicanski/Getty Images

Greek Prime Minister Alexis Tsipras, who was elected with his Syriza party in January.

The 2008 financial crisis blew a hole in Greece's budget, which was already not in great shape. The Greek government took billions of euros in bailout money in 2010 from the European Union and International Monetary Fund. The lenders required Greece to implement crushing spending cuts and tax increases, which contributed to skyrocketing unemployment and plummeting living standards.

Since then, Greece has faced a choice: either stick with the bailouts and endure the pain of austerity, or reject the terms of the bailout — likely leading to default and, possibly, leaving the eurozone entirely.

Greeks elected a new government in January that tried for a third option: renegotiating the terms of the bailout to require less severe austerity measures. But this failed, partly because Greek leaders have no leverage, and partly because European politicians feared that granting Greece's demands would encourage other countries who've accepted bailout money — like Spain, Portugal, or Ireland — to rise up as well.

This new Greek government has punted the decision to voters: On July 5, Greece will hold a national referendum on whether to accept lenders' latest proposal and keep going with austerity, or reject the proposal and, in all likelihood, abandon the euro.

2) Why has the euro been so bad for Greece?

Milos Bicanski/Getty Images

Defunt drachma notes, from a time before the euro ruined everything.

When Greece joined the euro in 2001, confidence in the Greek economy grew and a big economic boom followed. But after the 2008 financial crisis, everything changed. Every country in Europe entered a recession, but because Greece was one of the poorest and most indebted countries, it suffered the most.

If Greece didn't use the euro, it could have boosted its economy by printing more of its currency, the drachma. This would have lowered the value of the drachma in international markets, making Greek exports more competitive. It would also lower domestic interest rates, encouraging domestic investment and making it easier for Greek debtors to service their debts.

But Greece shares its monetary policy with the rest of Europe. And the German-dominated European Central Bank has given Europe a monetary policy that's about right for Germany, but so tight that it has thrust Greece into a depression.

So Greece is squeezed between a crushing debt burden — 177 percent of GDP, about twice the level in the United States — and a deep depression that makes it difficult to raise the money it needs to make its debt payments. Any tax hikes or spending cuts enacted to help pay back the debt would just worsen the depression.

So, for the last five years, Greece has been negotiating with the European Commission, the European Central Bank, and the International Monetary Fund ("the Troika") for financial assistance with its debt burden. Since 2010, the Troika has been providing Greece with loans on the condition that the country raise taxes and cut spending. Those policies have contributed to crisis-level unemployment and poverty, causing massive resentment among ordinary Greeks. They've also hurt the country's economy so much that Greece can't raise money to pay off its debts on its own, and will keep needing bailout money.

Without the euro, Greece could handle all this without external help. But the euro means it can't use monetary policy to help itself out, locking Greece into this horrible cycle.

3) This sounds like a disaster for Greece. So it's all Europe's fault?

Milos Bicanski/Getty Images

These Greek protesters are fans of the "throw the Europeans in jail" approach to the crisis.

It's mostly Europe's fault, but Greece isn't blameless. The financial crisis revealed that its government had been, for years, borrowing more than it reported publicly, meaning the country was running bigger deficits and racking up more debt than previously thought. As an EU member, it wasrequired to limit its deficits to 3 percent of GDP and its debt to 60 percent of GDP. But Greece enlisted banks like Goldman Sachs and JPMorgan Chase to evade those rules and borrow money under the radar to enable more spending.

The discrepancy was massive. On November 5, 2009, the newly elected socialist prime minister, George Papandreou, admitted that the year's budget deficit would be 12.7 percent of GDP, almost quadruple the 3.7 percent the outgoing right-wing government had projected. The country's finances were in much, much, rougher shape than anyone — especially anyone financing the Greek government by buying its bonds — had realized.

At the same time, tax evasion by Greek citizens and businesses was, and remains, a huge problem. A 2012 study comparing Greek bank account data with government tax data found that the true income of the average Greek person is about 92 percent higher than the income they report to the government. Tax evasion accounted for half of Greece's 2008 deficit and a third of its 2009 deficit.

All that being said, the biggest factor in Greece's collapse into crisis was the global recession, which was enough that even countries like Spain that were running budget surpluses before the crash found themselves in debt crises. Greece's budget mismanagement was bad, and its tax evasion is a chronic problem. But don't get distracted: the real root of the crisis is that economies across Europe collapsed, the European Central Bank acted in the interest of rich northern countries like Germany and against the interest of poorer southern countries like Greece, and the Greek people paid the cost.

4) How has Greece's new leadership handled the crisis so far?

Carsten Koall/Getty Images

Greek finance minister Yanis Varoufakis (right) at a press conference with his German counterpart, Wolfgang Schaüble, on February 5.

Following their landslide victory in January 2015, Syriza and its leader, now-Prime Minister Alexis Tsipras, made it their top priority to renegotiate the terms of the bailout and ease up on the austerity program. This was what they were elected to do, but it was an impossible task, because Syriza has no leverage.

A few years ago, a Greek exit from the euro would've been a catastrophe. Foreign banks held so much Greek debt that a Greek default would've threatened to sink them. There was also a chance that a default would drive up interest rates for other struggling European countries like Portugal, Spain, and Ireland and force them to default. But now foreign banks aren't holding that much Greek debt, and European lenders are backing up Portugal, Spain, Ireland, and the like, so they have little to worry about. A Greek default would mostly just affect Greece. That denies the Greek government its most powerful tool in negotiations: a threat to just pick up and leave the euro.

The Syriza government tried to renegotiate the terms of the bailout all the same. But, predictably, the negotiations went poorly for the Greeks, and after a February stand-off Greek leaders made a number of concessions — giving up core promises such as a minimum wage increase — to extend the bailout for another four months, austerity and all. It was a huge defeat for Syriza.

It's now time to negotiate another extension, but after Greece made even more major concessions, European lenders still judged them to be insufficient. Eventually, the Greek government gave up trying to reason with its lenders. Tsipras put the lenders' latest proposal — which he calls "unbearable" and German chancellor Angela Merkel calls "extraordinarily generous" — up for a national referendum on Sunday. Voters will decide whether to accept lenders' demands and continue with austerity, or reject them and thus likely default.

In the meantime, Greece has announced it will not make a required payment to the IMF on Tuesday. The big three rating agencies — Fitch, S&P, Moody's — say that failing to make the payment will not constitute a formal default on Greece's debts. But a failed payment will definitely spook investors and cause bond interest rates to spike, which isn't something Greece needs now of all possible times.

Can we get a Greek musical break?

Of course. Here's Vangelis with the "Love Theme" from Blade Runner:

It has recently come to my attention that there are Greek musicians other than Vangelis and Yanni. Here's Diamanda Galás's cover of "I Put a Spell on You":

5) If austerity is so much of the problem, then why is Europe imposing it on Greece? And why are European lenders being so inflexible?

Guido Bergmann/Bundesregierung via Getty Images

French president François Hollande (left), German chancellor Angela Merkel, and Greek prime minister Alexis Tsipras meet on Friday, June 26.

Here's how European lenders see it: Some of the money the Europeans are lending to Greece comes from the IMF and the European Central Bank. But a lot of it comes from other European taxpayers, particularly German taxpayers. If you're a German politician, this puts you in a tough spot. You don't want Greece to collapse in upon itself, because you believe in the European project and don't want to see the eurozone break up, because you don't want to spur other countries to leave, and because you're a human being who doesn't like needless human suffering.

But you also don't think it's fair to use your own people's money to subsidize a country that's shown itself to be really bad at basic state functions, like collecting taxes, that has traditionally handed out government jobs as political favors, and that engaged in outright fraud to enable reckless amounts of borrowing during the mid-00s boom years.

It doesn't seem fair, and it also doesn't seem sustainable. What's to stop Greece from running up its debt again in the future and provoking a similar crisis? From European lenders' point of view, the way you do that is by making deep reforms a condition of bailout money. That has the side benefit of making it easier to sell aid to your German voters. Sure, we're giving the Greeks money — but we're making them get their shit together too.

That's what the Europeans say, but it doesn't make a whole lot of sense. Nobody disagrees that Greece needs major reforms. But major reforms don't need to go side by side with destructive, economy-wrecking austerity measures. They also don't need to go alongside a European Central Bank that hasn't been willing to do what it takes to grow the economies of Greece and other struggling European nations.

Basically, what's going on here is that Germans and other northern Europeans are acting in their perceived self-interest. They think the European Central Bank's monetary policy works for them, and don't seem too concerned that it could be causing a depression in Greece. And because Germans control the ECB, and monetary policy is made for Europe as a whole, Greece is helpless. It has to accept the policies the German-dominated ECB adopts. Greece could cope if the Germans agreed to compensate for this destructive policy regime by giving the Greek people cash to boost their economy and get back on their feet. But Germans and their allies won't do that, both because it's domestically unpopular (German voters don't care about suffering abroad any more than voters anywhere do), and because of a strong moralistic streak that insists that the Greeks have sinned and have to atone.

6) Why is Greece imposing these odd bank rules and ATM restrictions?

Milos Bicanski/Getty Images

Greeks line up outside ATMs on Saturday.

The Greek government has officially imposed capital controls to try to contain the economic crisis. That means, for example, that it has shuttered all banks until after the referendum on the bailout deal, and issued strict regulations on other use of financial institutions. ATM withdrawals are limited to €60 per day, per account. Transfers of money outside Greece are banned; exceptions require Finance Ministry approval. Pension and wage payments proceed as normal, as does internet banking and debit card transactions.

The basic reason behind the rules is to prevent bank runs. If people take too much cash out of the country's banks, then they'll cease being able to make loans and the country will fall into a financial crisis.

But if you're an individual Greek citizen, you have strong reasons to want to take your money out. Deposits could be raided to help keep banks solvent, as happened in Cyprus. Or Greece could abandon the euro, convert all deposits into its new currency (probably the drachma, the country's pre-euro currency), and then devalue that currency dramatically.

7) Is it possible that defaulting and leaving the euro is really Greece's least-bad option?

Milos Bicanski/Getty Images

Protesters urge a "no" vote on the referendum.

It really bears repeating what a humanitarian catastrophe Greece is enduring. 25 percent of people are unemployed. Youth unemployment is near 50 percent. Hunger among Greek children has risen. And the economy is set to grow a paltry 0.8 percent this year. People will continue to endure immense suffering for years if austerity does not end.

Greek leaders need to do something; anything to make austerity less severe is desirable. If Greece were allowed to run a budget deficit and spend on programs to create jobs and offer relief to the most desperate citizens, then its social crisis would lift. Fiscal stimulus works and if a country has ever needed it, it's Greece right now. But the terms of Greece's bailout forbid it.

If the Europeans don't relent, leaving the euro may just be the best option left. In the short-term, this would be a rough path. Very, very stringent capital controls would be needed to keep banks solvent, and if they weren't enough, an all-out financial crisis would ensue. A lot of wealth would be wiped out as the value of drachma-denominated assets plummeted. There's a chance of dangerous inflation.

But leaving the euro at least provides a path toward an actually growing economy for the country sometime in the next decade. The Greek people would finally have control over their monetary policy, letting them devalue their currency, boost exports, and get back on track.

8) So what happens now?

Milos Bicanski/Getty Images

Finance minister Yanis Varoufakis speaks to fellow lawmakers on Sunday.

If the referendum passes, then, assuming European lenders stick by their old offer, Greece goes back to austerity and muddles along the way it has been. But that may not be a safe assumption. It's not at all clear that the Europeans' last offer remains on the table. The Financial Times' Wolfgang Münchau predicts that a "yes" vote wouldn't lead to a bailout extension, but instead to Greece trying to maintain capital controls and introduce a parallel currency to the euro. Greece isn't allowed to print euros, but it could declare that the country has two official currencies, and start printing the other one and using it to shore up banks, pay bills, etc. That way, they wouldn't technically leave the euro. Euros would still be legal tender. But they could get most of the benefits of leaving the euro.

If the referendum fails — or if non-payment of the IMF loan or some other catastrophe happens before the referendum and forces dramatic, immediate action — things are even less clear.

The European Central Bank currently provides emergency loans to Greek banks to keep them from failing. It will likely stop doing that if Greece stops cooperating. That means Greece has to do something to stop Greek banks from running out of money and collapsing. At best, that'll look something like the capital controls that have already been implemented. Those could theoretically be enough to keep money in Greece and the banks humming along, even without European support. A "bail-in" in which money is taken from depositors is also possible.

The other, more dramatic option would be to reintroduce the drachma, either as a parallel currency to the euro or as a full replacement (Münchau predicts full replacement). It'd be a painful adjustment, but it lets Greece get out of its depression the same way the US, Canada, the UK, Sweden,Israel, and other countries with their own currencies got out of the 2008 financial crisis: through big, aggressive monetary policy.

Greece would be the first ever country to leave the euro, a disastrous result for the project of European integration as a whole, not least because it could embolden voters in other struggling countries like Spain to elect left-wing or populist right-wing governments and try to leave the euro themselves.

9) Isn't there another option here? Maybe something that is at the moment politically untenable but theoretically could really work?

Streeter Lecka/Getty Images

An American flag in South Carolina, America's premier leach of a state.

There is another option, yes. It's not one that European policymakers are really considering, but perhaps they could: become more like the United States. Here in the US, as in Europe, we have states with weaker economies that require endless financial assistance. Only, in the US we don't call them bailouts, and we don't treat it as a crisis.

Every year in the US, richer states pay more in federal taxes than they get back in federal spending, and poorer states get more in federal spending than they paid in federal taxes. South Carolina, for example, gets $5.38 back in federal spending for every dollar it gets in taxes, according to aWalletHub analysis. Last year, it was $7.87. But we don't consider that money a bailout and we don't demand that South Carolina impose crushing austerity measures. The arrangement is quite stable; it's been well over 150 years since South Carolina last formally considered an exit from the union.

Now, the US is a political union as well as economic union, and the EU is only the latter. But the goal of European integration is to get it there, and one thing that entails is real fiscal union, including huge, unlimited, never-ending transfers from rich areas of the union to poor ones. It's politically tough to stomach, but that's the deal.

If European lenders really cared about the European project, they'd be trying to persuade their countrymen to move closer to European super-statehood, big transfer to Greece and all, rather than punishing Greece. And the more spending and tax policy Europe takes on as a whole, the less it has to rely on the Greek government's poor tax collectors and corrupt bureaucrats. The reforms the lenders want so desperately would come naturally. They just need to lend Greece a hand.

Timothy B. Lee contributed to this article.

http://www.vox.com/2015/6/30/8867939/greece-economic-crisis

A Greek Tragedy That Can Only Be Ended by Greece Leaving the Euro

by Adnan Al-Daini / June 30th, 2015

Have the people of Greece been singled out for particularly harsh punishment by its international creditors for daring to elect Syriza? Are they being used as a warning to other countries not to emulate Greece? The economic argument for demanding more cuts and austerity no longer makes any sense.

Austerity has caused Greek GDP to shrink by 25%, with unemployment now standing at 26%, youth unemployment at 50%. The human misery behind these statistics has seen the suicide rate increase by 35.5%. Greece is now a country where 49% of the population relies on the pension of an elderly relative that has shrunk by 61%. Yet international creditors are demanding even more cuts to this lifeline.

Now the Greek negotiators have said enough is enough, and in true democratic fashion are intending to put the case to the people in a referendum on 5th July. The stage is set, and Greece will be declared in default for not paying the IMF 1.6 billion euros due today, 30th June.

Meanwhile, in a parallel universe, since March 2015 the European Central Bank (ECB) has been pumping 60 billion euros a month into the Eurozone financial markets, and will continue to do so until at least September 2016. This money is created electronically under its Quantitative Easing programme (QE).

What kind of system have we created where our elite inflict austerity on ordinary people that causes misery and suffering to millions, while financiers and gamblers of financial markets enjoy such a bonanza of riches? The mind boggles.

The people of Greece are no longer in control of their destiny; they have been enslaved by debt, with suffering and misery cascading onto future generations. They need to be courageous and say – we want control of our country and destiny. They can only do that by leaving the Eurozone. Yes, there will be shock in leaving, but it can't be much worse. The sooner this happens the sooner the country will recover.

The present situation is intolerable. The "moneymen" are effectively saying to Greece – we don't care about your democracy; we are in charge regardless of who you elect. It is time for the Greeks, to say – no, enough is enough. It is time to say – we are in charge and we will escape the straight jacket you put us in, and we will prosper without you.

The Eurozone bureaucrats are afraid that you, the Greeks, may leave and succeed, thus showing that there is a better life without the euro. This may encourage other suffering people to escape the current European Union (EU) of financiers, bankers and Eurocrats. I hope that the people of Europe will then be able to build an EU of the people, an EU that cares about the lives of all its citizens not just its 1%ers, an EU that unites its people instead of the present divisions driven by austerity and cuts.

I say to the Greeks, you have a beautiful country; people the world over will flock to your shores to enjoy that beauty and your hospitality and charm. They need to escape a life, albeit for a short time, imposed on them by an elite that sees human beings as an economic resource to be exploited for profit by the 1%ers.

Greece, you taught the world about democracy. You can now show the world that you could do much better by breaking the chains of the euro and I, for one, have no doubt that you will succeed.

Adnan Al-Daini (PhD, Birmingham University, UK) is a retired University Engineering lecturer. He is a British citizen born in Iraq. He writes regularly on issues of social justice and the Middle East. Read other articles by Adnan.

This article was posted on Tuesday, June 30th, 2015 at 5:04am and is filed under Austerity, EU, Greece, Opinion, Privatization.

http://dissidentvoice.org/2015/06/a-greek-tragedy-that-can-only-be-ended-by-greece-leaving-the-euro/

A GREEK TRAGEDY

Core Benjamin E. Diokno

It's the moment of truth for Greece. Its five-year financial turmoil precipitated by the recent global recession, and prolonged by a perpetual series of summits in Brussels that resolved very little, will end up with a referendum on Sunday, July 5. In the referendum, the Greek people will reject or accept the austerity measures demanded by the country's creditors. A "no" vote might result in a euro exit.

A man working at the central Fish market waits for customers in Athens on Monday. Greece announced that day that it will shut banks for a week and impose capital controls. -- AFP

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A euro exit has the potential to transform Greece, Europe and the whole world.

The Greek leaders walked away from the negotiation table and abruptly called for a referendum. They find the offer on the table from European governments and the International Monetary Fund (IMF) as unacceptable, requiring more pension cuts and tax increases in a wobbly economy. Greece's European partners and creditors were flabbergasted at the decision to call for a referendum.

The referendum decision was ratified by parliament after a marathon 13-hour session that ended in the wee hours of Sunday.

But Greece's current bailout expires on June 30. After that date, the €7.2 billion ($8 billion) remaining in the bailout package will no longer be available, which means Greece is likely to default on its €1.6-billion ($1.79 billion) IMF debt repayment due the same day.

To avert a collapse of its financial system, Greek Prime Minister Alexis Tsipras announced on Sunday that Greek banks would remain closed indefinitely and capital controls would be imposed. The Athens Stock Exchange did not open on Monday. It might remain closed indefinitely.

Over the weekend, Greeks rushed to ATMs to withdraw money across the country. Spooked by rumors concerning a possible fuel shortage, car owners swamped gas stations across Greece, prompting Greek's largest refiner, Hellenic Petroleum, to issue a statement assuring the public that there are ample reserves of gasoline to last several months.

The global response was swift. All bourses, bar none, were down. The Shanghai Composite Index sank 6.6%, taking declines from its June 12 peak to more than 20%.

The bellwether Philippine Stock Exchange index plunged by 122 points before it recovered to end at 7,567.38 -- still down by 54.67 points or 0.72% from the previous close of 7,622.05.

Last Monday, a measure of 20 developing-nation currencies weakened 0.7%, its fifth day of loses. Turkey's lira lost 1.4% versus the dollar. Malaysia's ringgit slid 0.4% dropping toward a 2005 low. Hungary's forint fell 0.8% against the euro, its weakest since Jan. 21.

As expected, Bangko Sentral ng Pilipinas (BSP) Governor Amando Tetangco, Jr. was quick to assure Filipinos that the Philippines is expected to perform well, owing to buffers that were built up in past years. He was quoted as saying: "The developments in Greece may cause volatility in financial markets, as some participants shy away from positions until there is a clear direction in the next steps in the European Union."

That assurance might turn out to be whistling in the dark. The reality is that Greece's potential euro exit is a move in uncharted territory. No one really knows what the outcome will be and what the consequences are of the referendum on Sunday. If it wins, the Greek government will have the backing of the Greek people to reject the harsh austerity being imposed on them by its European partners and creditors.

Greeks, in general, reject more demands for austerity. Yet, they are unwilling to leave the euro. It's not clear how these two conflicting preferences could be reconciled.

So, should Philippine policy makers just watch from a distance what's unfolding in Europe? Should we believe BSP Governor Tetangco that the Philippines will emerge from the Grexit drama unscathed?

First, it is not true that the impact of the Greek crisis is simply financial. Whenever the banks and financial system are impaired, the real economy is affected. For sure, the Philippines has hefty international reserves to sustain it for many months. Debt service and trading requirements will be served.

This is not simply about the peso-dollar exchange rate. It's the ability of the Philippines to export to a more turbulent and volatile world economy. Philippine exports are already down -- what more under a slower and more uncertain world.

Second, the Greek crisis shows how interconnected the world economy is. It would be a mistake to measure the impact of the Greek tragedy on the basis of the Philippines' direct trade activity with Greece alone. The Greek exit might help Greece solve its own problems, but it might also rattle other weak European countries (Italy and Spain, for example) or a great part of the European Union (EU).

Third, there is a lesson here somewhere for those who advocate an Asian Common Market akin to the EU. The EU is a 60-year project that is threatening to unravel. Maybe an independent central bank may not be sufficient to keep the EU working. Maybe there is a need for a central fiscal policy body, too, to go hand in hand with the European Central Bank. Maybe there is a need for closer monitoring and stronger bureaucracy to manage the Union.

In brief, it's hard to craft a working Union if member-countries are unwilling to give up their monetary and fiscal powers. Now, which Asian government would be willing to give up its monetary and fiscal powers?

Meanwhile, Filipino leaders might find it interesting to watch the drama that is unfolding in Greece. To say that the Greek crisis won't affect us is foolhardy.

Benjamin E. Diokno is a former secretary of Budget and Management

bediokno@gmail.com

http://www.bworldonline.com/content.php?section=Opinion&title=a-greek-tragedy&id=110643