As Greece is going through a referendum on the bailout terms suggested by its creditors, the world economy is waiting anxious. What will happen to Greece, the Euro zone and to the world economy if the Greek people say no to the reform measures?
Opinion polls indicated that Greeks appear strongly divided over bailout decision. This is despite the hard-line campaign for ‘no’ made by the radical ruling leftist Syriza.
Reports are that as the voting hours reaches, there is rising ‘yes’ and a photo finish possibility. This shows that Greek people are quickly losing belief in the economy management capability of the Syriza team.
The effects of a no vote will be sudden and deep, depending upon the counter measures by Greece and the EU.
If Greek people opts for a ‘no’ it will leave shock effects on Greece, Europe and the world economy in different degrees.
The first impact will be on Greece. In Greece, with the reintroduced drachma, hyperinflation may appear. Currency crisis will follow it amidst banking sector failures and scarcity of hard currencies.
To meet the emergency, the Greek government also deployed arrangements. Banks will remain closed until Tuesday. Capital controls including ban on foreign currency payment to other countries are already made.
Even if Monday morning happens with ‘no’ by Greece, there is every chance that the EU may continue to support Athens with emergency funds to avoid the disastrous bank failures. Some panic is unavoidable with no and it may increase with a strong no.
Second, the impact on Euro zone in the case of no decision will be more an ideological set back. The idea of a common currency will be questioned as the members in Euro zone countries have different development levels.
Many economists at the time of the Euro zone formation have warned that a currency union without considering the asymmetrical structure of the economies will make the Euro zone unstable.
With a no decision, yield in European markets will rise. Liquidity shortage in some financial institutions is also a possibility.
Thirdly, these two will bring exit trends by FIIs and stock market volatilities in EMEs like India.
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