Greek tragedy would ensue from default

editorial

IN the wake of Monday evening’s emergency summit of euro zone prime ministers in Brussels, at the time of going to press this week, negotiations between Greece and the European Central Bank (ECB) were still deadlocked as they tried to find a resolution to the country’s debt crisis with default on a €1.5bn repayment due to the ECB at the end of this month looming large. The situation has been exacerbated over the past week by the big run on money – an estimated €3bn – deposited in Greek banks, which the ECB has been keeping afloat with emergency liquidity funding.

This and the inability and/or unwillingness heretofore of the Greek government to carry out unpopular reforms – as all the other bailed-out countries, Ireland included, had to do – in order to make the necessary savings to enable them to pay their debts has seen Prime Minister Alexis Tsipras and his Finance Minister Yanis Varoufakis being so defiant initially in negotiations with the their euro zone counterparts as to prompt the IMF’s managing director Christine Lagarde to admonish them by saying ‘there was a need for adults in the room.’

Last weekend, we saw Mr Tsipras in Russia, trying to ingratiate himself to President Vladimir Putin, who did not rule in or out giving the Greeks a Bertie-style dig-out, which would amount to mischief-making if he did as long as Greece is still part of the euro zone. A similar situation occurred in March 2013 when Cyprus needed a bail-out and its leaders went to Moscow seeking help as they tried to play off Russia against the EU, but it amounted to nothing and they were forced to enter a bail-out programme with the IMF.

Whatever populist stunts its leaders are trying to pull off to try to hold on to some political credibility at home, the situation in Greece has gone beyond a joke – not only for the people of that country, but for the rest of the euro zone which would also be adversely affected by a debt default and the possible knock-on effect of a Greek exit from the euro zone, dubbed the ‘Grexit’. This week’s fresh budgetary reform proposals by the Greeks brought some hope that a deal could be done, but there is often many a slip between the cup and the lip, especially with the German Chancellor insisting that any new agreement should be approved before signing off on it by the Greek Parliament.

Countries tied in to the euro currency are at a delicate stage in a fragile recovery process from the international economic collapse of 2008 and a Greek exit would undermine the great strides that have been made by countries like us who played by the agreed strict fiscal rules. But, these may need to be bent a bit to extricate Greece from the almost untenable mess it is in.

Whatever way the current debt negotiations turn out this week, it is the people of Greece who are going to suffer, be it like ourselves heretofore by having to endure the inevitable further austerity that would accompany a new bail-out programme or the less-likely scenario of their government throwing caution to the wind and returning to the drachma, which would be a very weak currency.

Even though euro zone ministers have been hatching a ‘Plan B’ to deal with a ‘Grexit’ scenario, at this stage, for them, it is far more important to get the defiant Greeks back onside than to have to deal with the nasty consequences of a debt default on June 30th.