What’s At Stake In The Latest Greek Bailout Crisis?
By Carol J. Williams, Los Angeles Times (TNS)
As Greece’s new leftist leaders engage in an economic battle of chicken with their European creditors, the outcome of crisis talks portends dramatic consequences for the perennially indebted Mediterranean country as well as for its European lenders and global economic stability.
Here is what is at stake in the decision on whether to extend Greece’s bailout terms:
Greek Credibility As A Borrower
Athens was forced to seek loans from its European Union allies after its economy imploded in 2009 because it could no longer borrow on international markets. Should the country default on its obligations to European lending institutions or abandon the austerity measures imposed in exchange for those loans, the country would lose credibility as a borrower. The national coffers would run empty, reportedly within weeks, leaving the government unable to pay salaries and pensions — unless it reverts to the drachma, the domestic currency it abandoned 14 years ago when it entered the eurozone, and prints its own money again, setting off a new spiral of inflation.
Greek Political Stability
An anti-austerity campaign theme brought leftist Prime Minister Alexis Tsipras and his Syriza party to power last month as Greeks voted against the fiscal sacrifice that has caused their economy to contract by 25 percent over the past five years. Tsipras encouraged voters to believe they could force European creditors to accept an easing of repayment terms and reforms to boost tax collection, gambling that keeping Greece in the eurozone was so essential to European and global economic stability that its creditors would capitulate.
Eurozone finance ministers were persuaded last week that Greece would not take unilateral action to scuttle its bailout commitments or tap the national treasury to a degree that would deprive it of the funds to pay its debts. But leaked details of the planned rollbacks on campaign promises have angered Syriza hard-liners, and the measures may still not be enough to satisfy the bailout oversight “troika” — the European Commission, the European Central Bank and the International Monetary Fund. The new government faces the possibility of being damned if it does secure a bailout extension at the cost of continued austerity, and damned if it doesn’t and the country drops out of the eurozone and into a perilous new era of economic freefall.
While economists in some of the eurozone’s 19 member states have signaled that a Greek departure from the common currency would cut alliance losses, it would nonetheless represent a failure of the euro experiment that is a fundamental part of the European Union vision of the continent as a unified economic powerhouse. It would also leave the remaining euro users holding worthless paper on the 246-billion-euro ($280 billion) bailout of Greece five years ago.
A Greek exit from the eurozone would enhance skepticism about the shared currency among the major economies in the region that have yet to adopt it — Britain, Poland and Sweden, among others — making it unlikely that they would sign on to a potentially tanking project in the near future.
The European Union
Failure of the euro experiment to fulfill its goal of relying on the union’s stronger economies to lift neighbors out of financial trouble would undermine the grand mission of the 28-member alliance. It would also empower those lobbying in Britain to pull out of the union, which has been a drag on the fortunes of the more prosperous members. Aside from the European Union’s economic goals, the alliance pursues political and social unity with regulations and policies that have caused friction between the central authorities in Brussels and constituent capitals, including Britain’s fierce objections to a homogenized immigration policy and labor mobility among member states.
The Global Economy
World stock markets rallied to new highs Friday after eurozone finance ministers announced that they had reached a tentative agreement with Greece that would keep the country on track with its bailout commitments for four months beyond the current accord’s Feb. 28 expiration.
Investors had gone into panic after the Syriza leadership took office in late January and embarked on a tour of European capitals to drum up support for its demand of more autonomy in deciding how to manage its own budget and stimulate employment in a country where nearly 26 percent are jobless. Failure of the troika to secure a genuine commitment from Athens to abide by the bailout terms could plunge markets around the world into profound uncertainty about the future of the European Union, which by most calculations is collectively the world’s biggest economy with an $18 trillion gross domestic product.
AFP Photo/Louisa Gouliamaki