The country of Greece, still reeling from 2008's economic recession, owes the International Monetary Fund €1.6 billion. That payment is due Tuesday. They announced today they will not be making it.
That decision could have catastrophic consequences, says Charles Sennott, head of The GroundTruth Project, like destabilizing the fragile economy of the eurozone and as a result, the world economy more broadly.
"This is new. This is not a grounded, economic community that has a lot of traditions and a lot of strengths. It's still taking shape," he said.
But while it seems certain now that Greece will default on their loan, the way their creditors will respond is anything but. Greek banks currently depend on emergency funding from the European Central Bank. But if the country refuses to accept the terms of further bailouts—which include significant cuts to pension programs—future aid from Europe will be in jeopardy and Greece may be forced out of the eurozone. Prime Minister Alex Tsipras has called for a referendum on those bailout terms on July 5th.
"There is a strong emotional rejection in Greece to the imposition of these austerity measures," Sennott explained. "Then there's a strong reaction among those who watch the global economy, who see it more from Germany's point of view, from the responsible, big economies of Europe, who say: 'Greece, you have squandered all your resources. You have failed to deliver on all the measures you were supposed to be beholden to, and you are now going to suffer the consequence."
Sennott says it looks increasingly unlikely that Greece will accept such austerity measures. Then, Europe has some big decisions to make about the future of the Euro and their interconnected economy.
"If it rejects this austerity measure, the thing I think is up for grabs and being interpreted right now to the experts is: will it mean a re-negotiation of terms, or will it simply mean they're in default, and they fall out of the Euro, out of the eurozone?" he said.
Observers will have to wait until July 5th to find out.
To hear more from Charles Sennott, tune in to Boston Public Radio above.
