Grexit

Overview

Grexit, short for “Greek exit,” is a portmanteau term used to describe the potential withdrawal of Greece from the European Union’s currency zone, commonly referred to as the Eurozone, mainly as a result of the country’s financial crisis and unmanageable public debt that first came to light in late 2009 and continues as of 2015.

Background

The Greek government’s sovereign debt crisis began in late 2009, becoming the first of four nations to be affected by the European debt crisis in the turmoil of the Great Recession, which was heavily compounded by the Greek economy’s structural weaknesses and over a decade of public overspending and fiscal mismanagement. In April 2010, as the country’s debt continued to pile up and investors’ concerns escalated, the Greek government requested and received an European Union-International Monetary Fund (IMF) bailout loan of €45 billion to avoid defaulting on its public debt. However, following the Greek government’s implementation of fiscally austere policies aimed at reduction of spending, the Greeks’ public opinion and perception of its membership in the Eurozone quickly became divided into two opposing camps and prompted debates on both national and European-wide scales. On February 6th, 2012, the term “Grexit” was introduced by Citigroup’s chief analysts Willem H. Buiter and Ebrahim Rahbari in a report titled “Rising Risks of Greek Euro Area Exit.”

Notable Developments

Post-Election Speculations

On January 27th, 2015, the debate was renewed following the formation of a new government under the leadership of Alexis Tsipras of the new Syriza (“Coalition of the Radical Left”) coalition party, with several government officials and economists arguing that a default on public debt is inevitable for Greece and any additional monetary aid from the European Union would only worsen the situation in the long term. On February 20th, Eurogroup, the assembly of Eurozone finance ministers, agreed to extend the duration of Greece’s bailout for an additional four months,

News Media Coverage

During this time, speculations of Grexit became extensively discussed across the rest of E.U. member states in the region, particularly among the news media in Germany, France and Italy, Greece’s three biggest creditors, providing a pivotal boost to the rise of the term “Grexit.”

Arrearment in IMF Debt

What ensued in the months after the bailout extension were a series of negotiation attempts between the Greek government and the Eurogroup to work out a mutually agreeable plan for economic reforms in the country, albeit without any fruition as the Eurogroup ultimately refused to further extend the bailout. As a result of the deadlock and the Greek government’s subsequent failure to meet the IMF’s June 30th deadline for repayment of €1.5 billion (approximately $1.7 billion USD),

Greek Bailout Referendum

On June 27th, Greek prime minister Alexis Tsipras proposed a referendum to decide whether Greece should accept or reject the extended bailout conditions proposed by the EU and IMF. That same day, with the IMF repayment deadline only days away, the Greek government announced a temporary nationwide shutdown of banks, including limitations on ATM withdrawals to €60 per day for each account, as well as the closure of the Athens stock exchange (ATHEX) for a week. The next day, the referendum was ratified by Parliament and the President to be held on July 5th.