Scheherazade Rehman is professor of international finance and business.
The size of the Greek economy within the European Union of 28 countries is infinitesimally small. Its gross domestic product is $237.59 billion which is less than 2 percent of the overall EU GDP of more than $18.4 billion in 2014 and it represents only 0.38 percent of the world economy. So what is all the fuss about?
As a Eurozone member, no matter how small, Greece defaulting on a $1.6 billion loan to the International Monetary Fund, and refusing to sign a credible reform deal which could stop future loan defaults, causes a serious stir in the financial markets.
The next Greek loan repayment is due to the European Central Bank on July 20 for $3.5 billion. The commotion is louder than normal since it is a leftist fringe government under Prime Minister Alex Tsipras. Tsipras came into office promising the Greeks an unrealistic silver bullet to their problems— no more fiscal austerity but still more money from its international creditors. At best Prime Minister Tsipras is naïve on the political stage, and at worse he is delusional as he continues to believe that if there is a Grexit, the Eurozone will fall apart and the EU will never allow that to occur.
This was perhaps true in 2010 when the Greek drama began and global capital markets were jittery on the heels of the 2008 global financial crisis. But the fear of a Eurozone collapse is no longer true today. The markets now understand it is a Greek problem and other EU members are fed-up with the Greek drama. Tsipras has to ask himself one question: How does he want to be remembered?” He can either be remembered as an “electoral accident” that made the Greeks poorer for decades to come, or as a real revolutionary reformer that sheds his leftist ideals and actually modernizes Greece into a mature developed economy. The latter, however, will need him to step-up as a real leader and not a false prophet. Either way his political shelf-life is limited.
More importantly, Greece could very well be the canary in the European mine and warning us of dangers ahead—unsustainable costs of social welfare spending and the unwinding of centrist politics—the seals of postwar Western European order.
So how does it impact GW students or any student for that matter? For starters, ongoing market uncertainty and volatility about Europe’s future has already hit your investments and your parent’s 401K plans. However on the bright side, interest rates are much less likely to go up this summer, mortgage rates will remain lower for a while longer and trips to Europe will be cheaper.
Nonetheless, the “new normal” is increased uncertainty and more volatility in markets and jobs globally. American and international students will be feeling the impact of the Greek/European drama long after they have graduated from GW.
