For those who haven’t been following the Greek default situation that has developed over the past few weeks, grexit means Greek exit: from the Euro, and likely the EU as well. Over the last week or so negotiations have been held in order to try to keep Greece from missing a 1.72 billion euro payment and therefore defaulting on its loans from the International Monetary Fund, but they have broken down in large part thanks to the current Greek prime minister who was voted into office in January running on a platform of among other things saying no to national austerity. It seems as though on this front Mr. Tsipras has managed to keep his word, but his country is so far not looking the better for it. The recently elected prime minister was betting that the rest of the EU would fold and bail them out in the name of keeping the country from leaving the EU and setting a precedent regarding ejection from the union that could lead to a further collapse of the union down the road. This turned out to be unfounded however as leaders from the rest of the European states stuck to their guns about conditions regarding a bailout and no deal was reached. Now Greece has defaulted on its loan, its credit status has been downgraded, and it may now be facing ejection from the Euro and with it the EU. A vote took place on Sunday by Greek citizens on weather or not to accept reform and fiscal adjustment programs designed by the rest of Europe to move Greece in the direction of being in a position to feasibly start paying back more of the debt it owes to the rest of Europe. The reform plan had already been officially taken off of the table by that point amid the negotiation break down so rather than having any sort of an actionable outcome either way, what it basically came down to was that a yes vote would be a show of good faith by the Greek people that they are willing to tighten their belts and do what needs to be done to pay back what they owe as a nation. This is not what the world got, which shouldn’t be a big surprise in retrospect given that this is the same outcome of saying no that prevailed in moving Mr. Tsipras into office in January.

As a nation Greece is in for much more trouble in the years, and likely decades to come and in a way that its citizens don’t seem to grasp. Before the global financial crisis that started back in 2007 the Greek nation had two fundamental problems; an aging population that would be drawing rather than contributing money from their national coffers at an increasing rate in years to come, and a tendency towards not paying their taxes reliably and therefore woefully underfunding said coffers. What this amounts to is a growing need for money and an unreliable means of obtaining it. While this is a problem it would not usually be detrimental, as the nation could make up any deficit it needed to pay its bills with borrowing. However now that the credit rating on their national debt has been downgraded amid very real concerns that they may not be able or willing to repay that debt, borrowing will be an increasingly difficult alternative. With a GDP that has dropped by a quarter of its value in recent years and a youth unemployment rate of around 50%, issuing new debt might be a growing necessity in years to come. Basically by fighting against national austerity Greece is backing itself into a corner that will be very difficult and painful all around to get out of. This is a reality that seems to be lost on the Greek people as they continue to fight against the imposition of reforms that would make repayment of their current debt a more realistic notion and demonstrate that they have any sort of a will to pay back what they owe.

If Greece were to leave the Euro, this would only compound their problems by forcing them to switch to their own currency which would undoubtedly be devalued by comparison to the Euro, and this would create inflation concerns as well as throwing up barriers to trade with the rest of Europe.

If I were an economic advisor to Greece, I would strongly recommend doing anything possible to make a deal to prevent Grexit that doesn’t strongly hurt Greece’s economic growth, as well as putting in place measures that help to protect whatever amount of austerity they have left. Once that is done and the immediate looming crisis is averted, I would focus all of my efforts on decreasing unemployment and promoting economic growth. Fixing the taxation problems is obviously an important objective, but one that can wait until the economy is on a healthier path again and the base of taxable income is actually there to tax.

It is looking like European leaders and Greece may be close to making a deal on a bailout plan in the coming days, but even if they do come to an agreement, this will only be the first step for Greece.