Calls from analysts, investors and even journalists for Greece to hard default and leave the eurozone have increased dramatically over the last month, as it becomes apparent the debt restructuring EU leaders worked out last July is not deep enough to be sustainable.But is this really the deciding moment for Greece?
Some would say Greece is so close to defaulting once €14.4 billion ($18.7 billion) in bonds mature on March 20 that this really is the end.
They would cite politicians who have laid down an ultimatum for Greece; just this morning Luxembourg’s Finance Minister said Greece must choose between gripping reforms or euro exit, according to AFP. They will harp on the likelihood that the current plan on private sector involvement that doesn’t trigger a credit event either won’t happen or will completely destroy the credit default swap markets.
On the other hand, there are many signs indicating that EU leaders are once again willing to “kick the can down the road.” Headlines yesterday indicating they could delay dispersion of some or all of the bailout funds promised to Greece until April or later suggest they are willing to do just enough to keep the country from a disorderly default but not enough to truly fix the country’s sustainability problems.
From think tank Open Europe’s Raoul Ruparel this morning:
“There’s no way Greece can actually ever fully meet the conditions laid down by the EU and IMF – particularly if they keep piling on new demands. The scale of the cuts goes far beyond any fiscal consolidation – successful or failed – that any country has gone through in living memory.”
“The question is instead one of how long the eurozone’s charade of unrealistic conditions in return for more bailout cash can continue. Specifically, will Germany and other Triple-A countries accept half-baked solutions to the big unanswered questions that still haunt the efforts to save Greece?”
The same goes for the true, fundamental problems of the eurozone. From Eurasia Group’s Ian Bremmer last month:
In Europe, the muddle is the risk. It’s not the breakup of the eurozone we need to fear in 2012 but a reactive, incremental approach to crisis management that will fail to satisfy investors and could push events beyond the control of political officials. The uncertainty and volatility we saw in 2011 has only just begun.
Whether or not this is best for Greece is another story: what are the chances of the country being able to access the markets for funding anytime in the near future if it stays in the eurozone versus those if it leaves? What impact will growth have on that, assuming that a return to growth will probably be easier with a devalued currency?
EU leaders show every indication of letting this drag on, with proper protections for their own funds, of course. The argument over €325 million in new cuts in Greece—trivial in comparison to the size of the bailout—is more a power struggle than anything else. Germany, Finland, and the Netherlands are more interested in preserving their economic interests and punishing Greece for the bad behaviour that has fuelled their economies than to truly help the country recover.
If this is indeed the outcome, then the Greek people—and not the troubled European leadership—will ultimately be the ones to instigate a default and even an exit from the euro area. The societal crisis there deepens daily amid economic contraction and every new austerity measure has devastating consequences for the general populace. Anger towards the core over Greek sovereignty and national pride are just starting to heat up, and if last weekend’s protests are any indication then Athens is ripe to turn into a disaster zone.
Just as in Argentina, the people will eventually get fed up, but if this is what we’re waiting on then it could still take a while.
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