Greek crisis - what happens next?

Sarah Coles
Greece Bailout
Greece Bailout

The Greek crisis has been incredibly hard to predict. A couple of weeks ago there were high hopes for a last-minute deal that would enable the Greeks to pay their debts. Last week there was a growing belief that Greece would default, and ultimately leave the eurozone after a slow and careful transition. Now we could be set for something much messier.

Everything changed when the Greek government decided to call a referendum for 5 July, asking people whether they would like to sign up to austerity measures and debt restructuring that would free up funding from Europe, and enable them to pay their debts to the IMF.

A no vote
There is a chance that the Greeks will vote against austerity on 5 July, which will make it the only country in the eurozone ever to miss a sovereign repayment, and raise red flags at the European Central Bank. It's worth highlighting that a 'no' vote is not a foregone conclusion - but it is a risk.

The reason why people suggest a no vote could lead to Greece leaving the eurozone is because the ECB is currently propping Greek banks up by allowing them to swap their holdings of Greek sovereign bonds for euros. If it thinks the failure to pay the IMF compromises the integrity of those sovereign bonds, it may refuse to accept them, and Greek banks will be cut off.
Even if it does not do this immediately, there will be another crunch point on 20 July when Greece is expected to repay 3.5 billion euros worth of sovereign bonds held by the ECB. If it misses this deadline, it will be in default, and the ECB is almost certain to stop doing business with the country.

The EBC has already withdrawn emergency support for the banks, and as a result the Greek banks have imposed what it calls 'capital controls', to prevent a run on the banks. It means people are unable to use credit or debit cards, and are only able to withdraw 60 euros a day - making life incredibly difficult for anyone in the country who hasn't already taken out large lump sums.

It also means the country itself has very little money - leaving serious questions over how state employees are paid, and schools and hospitals are funded.

Philip Dicken, Head of European Equities at Columbia Threadneedle Investments says: "What happens from here is hard to judge, with the situation changing on a daily and sometimes hourly basis, but what is clear is that some form of Greek default cannot be ruled out. Absent any further support from the institutions, Greece will run out of cash on or before 30 June. At this stage, Greece would find it difficult to pay any benefits or indeed the salaries of state employees, throwing the country into chaos."

Leaving the Euro

There's currently no provision for any country to leave the euro, so in theory it could hang on regardless of whether it paid its debts or not. However, without support from the ECB there would be little point in Greece being in the eurozone, and little sign of banking controls ever being dropped, so it may choose to leave and bring back its own currency.

The general view has always been that this does not have to be a painful process, and a negotiated exit from the euro could be planned without the risk of bank failure - or months of bank restrictions.

However, there is also the risk that this could be a messy process, with a new currency rushed in to get the banking system up and running again, so people could be paid and buy food, and institutions could operate. This could lead to devaluation and inflation within Greece - and even a new banking crisis.


For holidaymakers it means uncertainty about visits to Greece. At the very least, travellers are being advised to take all the money they need for the trip in cash - and check the small print of their travel insurance to make sure they are covered for it.

Overseas cards should officially be accepted too, but there's every chance that ATMs could be empty, and hotels, shops and restaurants will demand payment in cash - because they have no other access to it. There's also a risk that the services on offer from these businesses will be restricted if they do not have the cash to continue operating as usual. Likewise ferries, airlines and the airports themselves could be affected.

In the case of the closure of a business, those who have travelled with a tour operator have the most protection, because they will be responsible for finding alternative accommodation or transport. Those who want to travel independently will need to ensure they understand exactly what their travel insurance covers, and ensure they have a Plan B.

Of course, with these additional risks, some travellers have been wary of booking a Greek holiday. It means there are some incredible bargains around - and holidaymakers who are comfortable with the potential for a little disruption could bag a half-price holiday to the country.

But what d you think? Has the turmoil put you off, or are you planning to book a cut-price Greek getaway?

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Opinion Journal: What's Next for Greece?
Opinion Journal: What's Next for Greece?