Recently, Greece seems to be the new Miley Cyrus – everyone is talking about it! There seems to be a lot of chat about what is going on, but what we really want to know is how it is going to affect us, especially even if we are not travelling to Greece and have no direct connection to it. Keep reading for a brief, easy-to-read summary of what is going on and how it may affect you.
What is going on?
Greece, like many countries, borrowed billions of dollars to keep their country going, and so they operated in debt. They tried to make changes to the country with the borrowed money, but these changes were not enough to stop them being dependent on this cash flow into their bank accounts, which meant they needed to keep borrowing more money to sustain the country. However, they voted ‘no’ to borrowing more money as they feared it would mean more restrictions and austerity measures, which the country did not want. This leaves them in a sticky situation, which may affect you if travelling to Greece, or even if not!
How will it affect me when travelling to Greece?
At the moment, cash machines are still operational, and tourists are not subject to the 60 euros daily limit like the locals (that is £43). However, there are high demands at these cash machines, and so some have been empty for days. Be wary especially in isolated areas that it may be hard to take money out of cash machines.
In large retailers and hotel chains, credit cards are still functioning. However, smaller businesses will want cash payments to boost their cash flow. The foreign office has advised tourists of the possibility that banking services – including credit card processing – could be limited at short notice.
We would recommend paying for flights and accommodation direct with your hotel or airline using a credit card before you travel. This means you will be covered under Section 75 of the Consumer Credit Act, which will make it easier to retrieve a refund (for bookings over £100) if something goes wrong,
You do not need to worry about Greek euros, since all euros are backed by the European Central Bank, and it has insisted that each note is of the same worth, regardless of where it was issued.
If the drachma comes back, euros will still be useable for months in most places, so do not worry and just keep an eye on it.
There have been no reports of hospitals being overrun or turning tourists away, and so your ability to find and receive medical treatment should not be affected.
If you need outpatient treatment, you might have to pay bills of several hundred pounds yourself, and claim back the money later. If the hospital demands cash payments of more than a few hundred pounds, then you should contact your insurer straight away, and so they can liaise with the doctors and deal with the bills directly
Will it affect me in the UK, and if so, how?
The situation in Greece could either cause mortgage rates to rise or to fall, depending on what happens.
Mortgage rates could rise if wholesale interest rates rise. This will only occur if the mass Greek default causes contagion and panic spread, which may lead to a repeat of the credit crunch of 2007 to 2009. This could even increase pressure on banks to increase standard variable rates.
Mortgage rates could fall however, if the situation in Greece does not cause contagion, and instead it makes the yields on British government bonds (gilts). This is because Britain has become viewed as a safe-haven to place money in these tentative times, and so if investors put their money in gilts, the price rises and the yield drops, which could lower mortgage rates.
It is worth noting that the Funding for Lending Scheme (FLS) was set up in 2012 to create a buffer against the uncertainty of the Eurozone crisis and the rising cost of funds that was pushing rates up. The FLS could provide a splurge of cheap loans if the British mortgage market needs it.
The situation for the UK
The issue is that the UK also has a large deficit (£156 billion), and so there are concerns that the crisis could affect the UK too. However, the government has recently announced £6 billion worth of cuts to assure its investors that we will be able to reduce our deficit and repay gilt investors. Also, Britain has advantages over Greece as we are not part of the euro, so we can manipulate the pound to boost our economy via interest rates if needs be.
However, if Europe economy slows, Britain will feel the effect since half our Britain’s exports go to the Continent. This means that companies could struggle to increase sales, our economic recovery could hit the buffers, and eventually this could lead to a shortage of jobs. The market have been speculating whether there is a danger of a second banking crisis, however since central banks and governments have been through this one before, they are unlikely to let these problems occur again.
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