This is going to mean a big depression on economic activity in Greece. The short-term situation is pretty dire for them.
The short-term liquidation, which is the money that goes into the cash machines, just won’t be there. The ATMs will eventually run out and people will be forced to start bartering if no money is available.
Companies may not be able to get the money to pay their employees and could have to give them IOUs.
The question is, who is going to accept these IOUs? Will they be able to take them along to the equivalent of Tesco and get their week’s groceries? Without any kind of regulation for these kinds of credit notes, that seems unlikely. There will be an unwillingness on the part of shops to accept them.
Looking certainly at the short term, this is all going to be very difficult for people. People who have not managed to get cash out before the banks closed and before the ATMs ran out will have to rely on others, and this might be where the strong sense of the Greek extended family comes in. People who have been able to get some cash will have to help others.
If there is no solution soon – and that is a pretty high chance – Greece will have no option but to start a new currency, which will probably be the drachma. However, it is not likely to be worth much at the beginning in international markets, and any goods they import will become much more expensive.
It could be a boost for their export industries, however. Many of these are food-based, so they would have to wait for the next harvest for that to take effect.
If companies from overseas are selling goods to Greece, they may not be being paid. In the longer term, companies are not going to be willing to sell to Greece if they are not sure how and when they are going to be paid.
The other thing is tourism, which is going to be hit by this as people are not going to want to book holidays to Greece, not knowing what the currency is going to be worth and how much they will pay for their booze and Greek salad when they get there.
What is very worrying is that the banks have had a lot taken out in recent months and days and not a lot going in, and the outcome for that may be bank failure which no-one wants as people would lose all of their savings.
The Greek government has claimed that all people’s savings will be guaranteed, but how they are going to make good on that I don’t know.
With 50 per cent youth unemployment in Greece, a lot of their young people will already have left the country and that is not conducive to getting an economy back on its feet.
l David Bell is a professor of economics at Stirling University