Europe Moving away from “Grexit”
In 2008-2013, Greece suffered an extraordinary economic decline and for a while, the idea of exit from the Eurozone gained ascendancy, then it receded without going away completely. Eclipsed last year by the UK’s vote to exit the EU, and Donald Trump’s US electoral victory, the nation’s struggle to keep bankruptcy at bay has been out of the spotlight, coming on stage again on early 2017. Bailout negotiations between Athens and its creditors have, in fact, stalled and the possibility of Grexit, or euro exit, has re-emerged and bond yields have soared. The yield on two-year Greek government bonds has risen from 6% to 10% in less than two weeks as spooked investors have dumped their holdings. Greece’s banks lost about €4 billion in bank deposits since the turn of year 2017 as Greeks fear a return of capital controls that ban them from making cash withdrawals over set limits. Separately, the country looked as if it was tipping back into recession — GDP shrank by 1.2% in Q4 2016. And the shrill rhetoric last seen at the height of the crisis in 2015 has returned.
If the UK case was on this aspect clearer, there were forces in the UK pushing to leave the European Union, while the EU itself seemed to be unanimously against this possibility, the same can’t be said for “Grexit”. Is Greece willing towards this decision or are instead other EU countries that would be welcoming positively a Grexit?
Interviewed by the Guardian in early 2017, Sia Anagnostopoulou, a leading Syriza MP and former alternate minister for European Affairs, declared: “Grexit is not our agenda, it is the agenda of those who want the breakup of Europe…It is what Mr Schäuble wants” she added referring to the former German minister of finance, who has also raised the stakes with growing criticism of Greece. Bild, the mass-selling newspaper, suggested in late January 2017, that the German government was warming to the idea of Greece leaving the euro – a notion Schäuble has openly supported in the past. Supportive declaration on this came also from Germany’s Bavarian finance minister, Markus Soeder, who declared in March that:” Greece is unlikely to survive in the eurozone over the long term”, while similar declarations came from a German opposition politician, Christian Lindner, who said that Greece should abandon the euro and be offered debt relief.
In an interview released in August 2017 the EU Commission President Jan-Claude Juncker talked about Greece referring only to the 2015 situation and the role of the Commission, he declared: “If the Commission had not ensured that Greece was not expelled from the eurozone in 2015, the balance would be less good.” Adding also: “At the time, I fought hard for the stability of the Eurogroup, in particular for Greece, against the wishes of German Finance Minister Wolfgang Schäuble. If I hadn’t done that, the eurozone would have decayed.” These various voices can be useful to understand the complexity of the topic and the polyphony of different point of views. It is interesting to notice that the EU president admitted that Grexit was on the table between different options in 2015 but he considers that chapter closed nowadays.
The unstable situation depicted in early 2017, which major and first problem to be face was identified in the debt payment of 7 billion due in July by Greece mostly to the EBC and IMF, evolved positively in due course. A deal was reached in June 2017 to unlock loans of 8.5 billion euros for Greece. The deal, reached by eurozone finance ministers, ensured that Greece could pay about €7 billion, or $7.9 billion, in July 2017 on its towering pile of loans. The agreement included formal participation by the International Monetary Fund, said Jeroen Dijsselbloem, the president of the Eurogroup of finance Minsters. “Overall, I think this is a major step forward,” Mrs. Dijsselbloem declared at a news conference. The plans were part of efforts “to enable Greece to stand on its own feet again over the course of the next year.” Greece was offered bailout money above its immediate needs to service its debt. It also received some clarity about eventual measures to ease its debt burden in the medium term. Those measures included extending the final due dates on some Greek debt for as long as 15 years, to around midcentury, to make it easier to pay.
In another concession, the Eurogroup formally agreed to a longer-term French plan to link the scale of Greek bond repayments to the country’s economic growth, though it said details still needed to be fleshed out.
A second positive news came in late July 2017 when Greece successfully held the first bond sale since 2014. Athens has sold €3bn worth of its new five-year bond, at a yield or 4.625%. That’s lower than the 4.95% that Greece last sold five-year bonds for, in 2014. Government officials said that 200 bids were received, a sign that confidence is returning, and government official said the sale was an “absolute success”. A new deal on its debt and positive remarks from economic performances have turned away the concrete possibility for Greece to leave the Eurozone and maybe the EU as well. An option that was openly opposed by the European Central Bank, which President reaffirmed the concept that “The Euro is an irreversible process” and considered to be by many analysts a final disaster for Greek economy. An analysis published in late November 2017 by the Euvisions highlighted the bad effects of a possible Grexit on Greece: “Greece would have to default. Similarly, many firms with foreign obligations would default too. The ensuing litigation would exacerbate uncertainty. Commercial banks would be bankrupt. They would have to be recapitalized or nationalized. The Bank of Greece would lose its independence.” The result of Grexit would be a second recession, with high loss of income and jobs. Grexit would be a lot of pain for no gain.
A final remark it is going to be made on the future situation. The Greek third bailout program, a 86 billion euro aid package ($102 billion), is due to finish in August of 2018, meaning that Greece will not receive any more disbursements from its creditors after that date and will have, in principle, to finance itself in the public markets. In order to guarantee that market access won’t be an issue after August, Greece hopes to get an agreement that will restructure its pile of debt before the summer, and thus, prove once more to investors that they can trust Greece after nearly a decade of financial crisis. The issue is highly contentions in Europe. Germany and institutions such as the European Stability Mechanism, which is a fund that helps euro zone countries that need to borrow, argue that Greek debt is sustainable in the coming years and it is therefore not a priority for creditors. But the Greek government is confident on the chance to have a new deal by the end of the program, thanks to the good results of year 2017 which were also recognized by the skeptical former German minister Schaeuble, who indicated that Greece has done what it was supposed to do and even more. The situation seems to move in the right direction but it’s still evolving and for this reason to be constantly monitored.
By: Flavio Previtali