On the most recent edition of The Crash Proof Retirement Show ®, Phil Cannella and Joann Small discussed the ongoing debt crisis in Greece, and what it could mean to world economies in the future.
By now, everyone knows the people of Greece have voted ‘no’ in a referendum on whether or not to accept the bailout terms offered by the European Union and other members of the Eurozone. Previously, the leaders of other European nations maintained that a ‘no’ vote would spell the end of any hopes of additional aid for Greece.
Now, however, those leaders have blinked and are returning to the negotiating table this Sunday to discuss what may be a last-gasp effort to rescue Greece. The fear is that if this round of negotiations fail, Greece will default on yet another debt payment, which could hasten their exit from the Euro zone.
For the past week-and-a-half, Greek banks have been closed, with customers only able to withdraw 60 Euros ($67 per day.)
“How do you do that to people who worked a lifetime? How do you take away security from your own people?” asked Phil Cannella.
“The saddest part of all this is the retirees,” Joann Small added. “It wasn’t until Wednesday that the retirees were able to access their pension or Social Security money.”
But how will this affect people here in the United States? Many experts have argued that Greece’s economy—the 43rd largest in the world—isn’t even a blip on the radar of the world’s economy. But Greece is not the only heavily debt-leveraged country in Europe.
The Italian Question
Italy comprises almost 20% of the European economy and has the world’s 9th largest GDP. And like Greece, their debt is higher than their GDP.
So now that Greece has called the European Union bluff—and the leaders blinked—what stops Italy from defaulting on their own debt?
“Maybe it’s not so much Greece,” confirmed Phil Cannella. “But if Italy decides ‘you let Greece off the hook, we’re not paying either!’ then you could lose one of your largest economies. It’s a domino effect.”
And that could create a worldwide ‘contagion’ effect—a new approach to debt management.
“It’s like a small ripple in the ocean—and it takes time to reach our shores in the U.S.,” summarized Phil Cannella. “But people in Greece are now experiencing what it was like in this country in 1929—banks are closing, and they can’t get access to their money.”