Here's a video of John Green explaining what has happened (because he's a lot cleverer than me):
Greece joined the eurozone in 2001 with lots of debt, (although successive governments had downplayed just how much debt). It was hit particularly hard by the 2008 financial crisis. The unemployment rate reached 28% in 2013 - worse than that suffered by the United States during the Great Depression. Greece found itself with even more debt, and because of the country's poor credit, loans became more expensive to obtain.
The International Monetary Fund, the European Central Bank and the European Commission (aka the 'Troika') loaned Greece around €240bn, and attached conditions to these loans. Greece was to impose tough austerity measures - budget cuts and higher taxes. This has in turn led to higher unemployment and poverty.
In January this year, anti-austerity party Syriza, led by Alexis Tsipras was elected into government. This government has been trying to reach a compromise with the Troika to alleviate the austerity measures. Meanwhile, Greece has been running out of money. Capital controls were imposed in Greece by the ‘Legislative Act of 28 June 2015 imposing a short term bank holiday’. These included capping cash machine withdrawals at €60 a day per bank card and prohibiting transfers of money to accounts held outside of Greece.
Last week, Prime Minister Alexis Tsipras said that the latest bailout deal would not be accepted without a referendum. On Sunday (5th July 2015) voters were asked ''whether to accept the outline of the agreement submitted by the European Union, the European Central Bank and the International Monetary Fund at the Eurogroup of 25/06/15', and over 61% voted 'no'. Finance minister, Yanis Varoufakis, abruptly resigned, despite his central role in rallying for a no vote.
German Chancellor Angela Merkel said the eurozone leaders had had a "serious, candid discussion" in Brussels that "reflected the seriousness of the situation at hand". She said the leaders "obviously respect the results of the referendum" but added: "As regards the euro, we don't have the sovereignty of just one country to contend with, but of 18. Shared sovereignty, shared responsibility."( via BBC)
Greece now has until Thursday to present new proposals to secure a deal with creditors, and a full EU summit will be held on Sunday.
There has been lots of talk about a 'Grexit' - a Greek Exit from the eurozone, but there are a number of possible outcomes, as explained here:
- Scenario one: Failed deal leads to Grexit
- Scenario two: Greek bank collapse leads to Grexit... or a deal
- Scenario three: EU leaders agree deal and avert bank collapse
We will hopefully know what is going on by the end of Sunday’s summit.