What is next for Greece?

Image: European Union 2014 - European Parliament

Image: European Union 2014 – European Parliament

It would be probably fair to say that few political observers expected the severity of Greek debt crisis, which we have been witnessing during the last few weeks of the Greek dialogue with EU creditors. The Greek government, led by Alexis Tsipras, remains in a precarious situation. On the one hand, it requires the financial resources from Europe in order to support the economic stability of the country. On the other hand Tspiras’ party, SYRIZA, came to power on the electoral platform of being tough with European creditors; always seeking to advance Greek interests first. In this context, the choice is quite clear: Greece can default on its debts, creating a risk of the country leaving Europe; it can still default the creditors without actually leaving the Europe; or it can come to terms with European creditors before Tuesday.

The first option is quite likely, yet it is the most dangerous one, since the Grexit might have unpredictable implications. At the very least, it will immediately challenge the economic and financial aspects of common EU monetary policy, endangering the future sustainability of the EU. Additionally, Grexit can question the whole r’aison d’etre of the European Union, its progress and its system of values, especially for the so-called “rapidly democratising” Eastern Europe. In the long-term, the Grexit simply creates a precedent for other states to leave the EU, raising serious questions regarding the future of the organisation. Indeed, the only side which would be satisfied in this outcome would be Euro-sceptic parties, which would receive a massive electoral impulse.

The second option, and less likely, is that Greece might default the payments, whilst also remaining in the Eurozone and EU. While this option seems difficult at the moment, it could be beneficial for both parties.  On the one hand, EU legitimacy (though not the financial reputation of the ECB) remains unchallenged, as the organisation should ideally take the immediate measures to avoid these situations in future by strengthening financial monitoring capacities. On the other hand, the Greek government would stay in the EU, despite inheriting economic problems, and can continue business as usual. In fact, the only party which would suffer would be the Greek people themselves, whose financial situation would be worsened even further as the level of debts in the country would rise dramatically. Additionally, it is unclear, at least at the present moment, how Greece could restore its economy after financial default.

The final option is the most difficult, yet also the most desirable one. Whilst there is still a chance for the creditors, the EU institution and Greek government to agree, time is not on their side, which seriously constrains the prospect of an agreement. Additionally, in order to achieve a deal, each party is required to sacrifice their core national interests, which at the moment looks highly unlikely, given the length of negotiations. However, hope remains that all parties could potentially design a compromised outcome, which will bring a peace, stability and normalisation of the situation. Otherwise, we are likely to see more unpredictability, destabilisation and uncertainty, which at the present geopolitical and economic moment is highly undesirable.

One comment

  1. 29 Jun ’15 at 6:59 pm

    Daniel Gronow

    An agreement between the Greek government and its creditors would indeed be the most desirable outcome. But the onus is on the troika (the European Commission, the International Monetary Fund, and the European Central Bank) to make that agreement happen. They forced an unrealistic economic programme on the country five years ago, and now need to rectify that.

    Why not reduce the amount of money owed? It won’t solve everything, but it would lessen the pressure a little. In 1953, an agreement was signed in London by a number of European leaders, to rescind half of Germany’s staggering debt. Bearing in mind that this was just eight years after the end of the war, the action was deemed necessary to revive a visibly moribund economy. Yes, the character of Germany’s debt was different in many ways to that of Greece’s, but the point stands nonetheless.

    The same could happen here, but won’t. The troika refuse to accept that their economic plan for Greece failed. Instead, Alexis Tsipras and the Greek government are being suffocated by an ‘immovable’ deadline, which is simply an attempt by the European Union to undemocratically force austerity measures on a country which voted against them. Austerity didn’t work five years ago, and the Greek people voted in a leftist government which offered change.

    Option three is unlikely to come to pass, I fear.

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