Following the break-down in talks between Greece’s political leadership and the country’s creditors – also known as the “troika,” including the International Monetary Fund, the European Commission, and the European Central Bank – Greece’s financial crisis has entered its eleventh hour.
While the drama is still playing out, it is all but guaranteed to have an impact on the global economy – including the philanthropic sector.
Last minute attempts on Tuesday from Greek Prime Minister Alexis Tsipras to secure a third bailout faltered, as German Chancellor Angela Merkel indicated that there would be no further negotiations until the results of Greece’s July 5 referendum on the current bailout package become known. Leaders across Europe argue that the referendum is a de facto vote for Greece to either remain in the Eurozone or leave.
On Tuesday evening, Greece has become the first developed nation to default to the IMF, missing a €1.6 billion loan repayment, entering insolvency and quickly approaching bankruptcy. The country also has the distinction of being the first European Union member to default on its creditors.
The global effects of the crisis are already taking shape. In Asia, stock markets fell 3 percent on Monday, while Europe dipped 4 percent in anticipation of the Greek default.
International turmoil this year has had little effect on U.S. markets. In fact, the U.S. exchange has gone through the longest post-recession stretch of time without a 5 percent sell-off. Additionally, the United States has little direct economic interest in Greece; the nation amounts to less than 1 percent of U.S. trade.
The real threat is the spillover that would occur from European markets, which would take a serious hit following a Greek default and a “Grexit” from the European Union. The biggest fears rest on the potential backlash, which could involve investors pulling money out of struggling Eurozone countries including Italy, Spain, and Portugal, as well as potential bank runs in those nations.
If the more pessimistic projections prove correct and the default and “Grexit” rattle global markets, the result could be a huge blow for the philanthropic sector, which is just now enjoying a return to pre-recession levels. Indeed, the sector broke a new record last year, raising $358.4 billion. This extraordinary feat – which defied predictions that it would take ten years for philanthropy to recover – was aided significantly by increased giving from corporations and foundations, which outpaced the rate of growth for individual giving.
As a Stanford report details, foundation and corporate giving are heavily influenced by stock market trends, and dip accordingly when markets take big hits. This means that, should the United States fall victim to the financial fallout of “Grexit,” the fastest recovering segment of philanthropic giving would face a hurdle to its robust rebound.
Nothing is certain yet. The referendum on creditors’ bailout demands is this Sunday, and a yes vote may pave the way for further talks that will mitigate Greece’s technical default and generate a plan to continue pumping Greek banks with funding in order to return the nation to solvency. But pending these compromises and deals, the philanthropy of corporations and foundations could face the detrimental effects of a sliding market.