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Office of News & Public Affairs

BC Expert: Greek Banking Crisis

office of news & public affairs

Bob Murphy

Robert Murphy
Associate Professor of Economics
Boston College
(508) 202-2295 (cell)

Professor Murphy served in the Clinton Administration as a senior economist at the Council of Economic Advisers; in that role, he served as editor of the Economic Briefing of the President of the United States.  He has also previously addressed the World Congress on National Accounts and Economic Performance Measures for Nations. Professor Murphy is a frequent commentator on the U.S. economy and how it is affected by fiscal policy. His knowledge base includes international economics and finance, budget and deficits and public debt, inflation, interest rates, unemployment, trade deficits and surpluses, exchange rates and general issues related to the value of the dollar, trade policies, international financial markets, and the oil market.



“A deal keeping Greece in the Eurozone is the most likely outcome, and the next several days will see market volatility and increased uncertainty.  Any deal will need to have a commitment to debt restructuring.  Both U.S. Treasury Secretary Lew and IMF Managing Director LaGarde reiterated yesterday in very strong terms the necessity of providing debt relief to Greece.  Combined with Prime Minister Tsipras' need to salvage some victory in return for more austerity and market reforms, a deal that includes a commitment to debt restructuring appears to be the only path forward now."



"Yesterday’s overwhelming rejection of additional austerity by Greek voters is a victory for democracy within a European Union often criticized for its “democracy deficit.”  Five years of austerity have not turned around Greece’s public finances and have sunk the Greek economy into severe depression. 

“Exit polls showed Greek citizens favor remaining on the Euro, but that decision is now in the hands of Greece’s creditors—the European Union, the International Monetary Fund, and the European Central Bank.  Prior to the referendum and in conjunction with Greece missing a payment on its outstanding debt, the European Central Bank shut off credit lines to banks in Greece forcing the Greek government to impose capital controls and limit bank withdrawals.  Unless these credit lines are soon restored, pressure will mount for the Greek government to allow citizens access to their money by introducing a parallel currency.  Such a move will be tantamount to Greece exiting from the Eurozone.

“Prime Minister Tispras, his hand now strengthened by yesterday’s vote, has an opening to push for debt relief as part of any new package involving austerity measures.  An interestingly-timed study released by the International Monetary Fund last week argues that Greece can never repay all its debt and will need debt relief, buttressing Tispras’s position.  A deal that combines debt relief, which had been off the table until further austerity was in place, with some new taxes and pension cuts may well be the path to keeping Greece on the Euro.  But such a deal will take more than the day or two left before Greece’s banks run out of cash.  So the big question now is whether the ECB will resume lending to Greek banks before time runs out.”



"The action is being taken because people are pulling their Euros from Greek banks out of fear that the showdown with the ECB, EU, and IMF will end with a Greece leaving the Euro Zone.  In calling for a referendum on the austerity package that the creditors have offered, Prime Minister Tsipras has drawn a line in the sand.  The referendum will fail as the Greeks are against the severity of the package.  But now that the ECB has declined to extend emergency funding to the banks, Tsipras had no choice but to freeze bank accounts. 

“Financial markets will be unsettled as this plays out over the next two days—leading up toJune 30 when a large debt payment is due.  Whether some sort of extension gets worked out remains to be seen. 

“Short-term fallout in the United States will be mainly through volatility in financial markets.  We may see some flight to U.S. government bonds that will push long-term interest rates down a bit from their recent increases.  Long term, I see very little impact on the United States from a Grexit (Greece leaving the Euro Zone) but clearly such an event would have repercussions within the EU for a long time to come."


Media Note: Contact information for additional Boston College faculty sources on a range of subjects is available at: /offices/pubaf/journalist/experts.html


Sean Hennessey
Associate Director
Office of News and Public Affairs
Boston College

(617) 552-3630 (office)
(617) 943-4323 (cell)