On Sunday July 5th, Greece citizens will vote on a referendum that may be remembered as the start of a global economic collapse. The referendum comes just days after Greece defaulted on its debt payments to the International Monetary Fund (IMF). (Source: Business Insider, July 3, 2015.)
The small Mediterranean nation ran short of money on June 30th, despite running a primary budget surplus last year. Although the country earned more in taxes than it spent, Greece still couldn’t afford to pay the interest payments on its old debt. (Source: The Wall Street Journal, January, 1, 2015.)
Once again, the Greek government appealed to its creditors for an additional line of credit. Negotiators from the European Union and the IMF insisted on more cuts to Greece’s domestic spending before any new funds could be released. Both sides solidified their positions and calamity ensued.
As the deadline loomed, the Athens Stock Exchange was closed, banks had capital controls forced on them, and mobs of frustrated citizens filled the streets. Now the Greek public must vote on whether or not to accept the proposal from the IMF. If they do not, they may deeply undermine stock market confidence in Europe and North America.
Before the capital controls were enacted, a poll showed 52% voting “No” and only 26.5% voting “Yes.” Another poll conducted on July 2nd showed the balance swing to 43% from 42.5% in favour of “Yes.”
European stocks are down roughly four percent since it became clear that Greece would miss the deadline. Investors are expecting much sharper declines in the event of a “No” vote. Yet, the euro edged up 0.1% against the dollar to $1.11 on a subpar jobs report in the U.S.
Even more worrying is the possibility that the contagion will spread to Italy and Spain, threatening to push those countries into insolvency. Both Spain and Italy’s yields rose to 2.20% and 2.24%, respectively. (Source: The Wall Street Journal, July 3, 2015.)