[01.07.15]

To avoid bankruptcy, Greece currently needs around €7.2 billion (£5.6 billion) in the form of a bailout loan. Despite months of talks, the Greek government and its EU creditors have not (as of 2nd July 2015) come up with a deal which will mean an agreement over the terms of the loan.

The sticking point is that the International Monetary Fund (IMF), the European Commission (EC) and European Central Bank (ECB) all want Greece to commit to austerity reforms, whilst the Greek government – elected in January – has so far refused to accept the measures, which would include a change to pensions as well as the country’s labour markets.

The Greek people have now been given a vote in a referendum scheduled for 5th July 2015 which will give them the chance to have their say as to whether to accept the creditors’ proposed reforms or not. If they vote against the reforms, it is considered highly likely that Greece would leave the EU, and this could have repercussions for a number of other countries – including the UK – which depend upon the stability of its markets.

The UK is far from Greece’s biggest creditor. Germany and France are currently owed in the region of €68bn and €43bn respectively, while Italy and Spain are owed around €38bn and €25bn respectively. The UK is owed substantially less – in the region of €10bn, slightly less than the amount the USA is owed.

Head of the group of eurozone finance ministers Jeroen Dijsselbloem has said that a “no” vote in the Greek referendum would not provide Greece with an easy way out of its economic crisis.

The comments come after Greek Prime Minister Alexis Tsipras told his country that a “No” vote would lead to a ‘better agreement’, although Mr Dijsselbloem insisted that this suggestion was ‘simply wrong’ according to coverage by the BBC.

The International Monetary Fund (IMF) has issued a report saying that Greece needs an extra €50bn over the next three years to stabilise its finances under existing plans.

In light of these events, the UK’s Bank of England Governor Mark Carney warned that the outlook for the UK’s financial stability has worsened and could lead to a reduction in the appetite for risk of businesses.

He said this could also have a knock-on effect on households after, on 30th June, Greece became the first developed nation to fail to make a payment to the IMF.

Mr Carney did reassure those at the Financial Stability Report that the UK was relatively well insulated from any direct consequences of the events in Greece, explaining that UK banks had a small exposure to Greece relative to their capital base.

Greek banks’ UK footprint was “tiny”, he said, before telling those present: “UK authorities will continue to monitor the situation thoroughly and will take any action necessary to safeguard UK financial stability.”

If you have any concerns about your business interests in Greece, please contact Jackie or Andrew.

Castletons Accountants