The country is in trouble again. Without a solution it could leave the euro—and even the EUby Vicky Pryce / February 17, 2017 / Leave a comment
Here we go again. A new impasse between the International Monetary Fund and Greece’s European creditors has raised once more the threat of “Grexit.” The IMF considers Greece’s debt, currently at 180 per cent of GDP, as unsustainable. It has therefore refused so far to take part in the country’s third bailout, agreed in July 2015, unless the European creditors offer debt relief. The Europeans are unwilling to write off debt ahead of national elections—when voters do not want to be told their taxes are going to help the Greek politicians.
The only other option on offer is even greater austerity to force Greece to aim for large primary surpluses in its yearly finances. This requires additional measures which the current left wing Syriza government, run by Alexis Tsipras, would have difficulty accepting.
There is a crucial Eurogroup meeting on Monday, 20th February which should—in theory—pave the way for a successful completion of the current review of Greece’s progress, and release a further chunk of money as some €8bn of loan and bond repayments are due this summer. But it may not. And the Dutch are saying that without IMF participation the whole bail-out is in doubt. The Commission has sent Pierre Moscovici, the EU’s economic Commissioner, to urge the Greeks to find a compromise solution. Without it, default or exit from the euro—maybe even from the EU—could follow.
Why do we worry so much? Greece is, after all, a small country accounting for less than 2 per cent of the eurozone’s GDP. But at the heart of the current impasse is what Greece’s travails tell us about the euro project itself. Was Greece’s euro participation a unique mistake that can be sorted out by cutting the country off the euro and letting it drift? Or is it part of a wider malaise that needs to be sorted out?
That Greece has done particularly badly under the euro is undisputed. But eight years on since the financial crisis, with the country unable to devalue or print its own money, GDP is 25 per cent down, the unemployment rate has stubbornly remained at over 20 per cent, youth unemployment has rocketed to over 50 per cent and the young are leaving the country in large numbers. The enforced internal devaluation though falling wages has done very…