Exhausted by the epic struggle over Greece’s future in the Eurozone? Bad news. That was no epic. That was chapter one, and chapter two starts sooner than you think.
Within weeks, Greece, Germany, the finance ministers of other Eurozone countries, the European Central Bank, and the International Monetary Fund will be at this again, and Grexit remains a very real threat. Why is this crisis still building? There are three reasons.
One, everyone (maybe even the Greeks) now recognizes that Grexit is thinkable. In fact, with each successive round of this fight, the prospect of Grexit has gotten less scary in the rest of Europe. The risk that Greece’s problems will infect Spain, Portugal, Italy and others has fallen. And with the IMF now saying publicly that the current bailout plan will not help Greece pay back its many creditors, the number of Europeans willing to close the book on Athens is on the rise.
Two, after Greeks voted “no” to the conditions offered by creditors on July 5, Greek Prime Minister Alexis Tsipras seemed to hold a stronger negotiating hand. But when the rest of Europe continued to drive a hard bargain, Tsipras said “yes” to virtually the same offer. Many Greeks still like him, but they’ll now have a much harder time believing his promises to gain them new concessions. He probably won’t remain long in his job. Even if he does, his position is much weaker. And the creditors know it.
Three, the Germans have the loudest voice among Greece’s creditors because Germany has Europe’s deepest pockets and is holding the most Greek debt. Greeks hate the current deal, but Germans don’t like it either. They don’t believe Greece’s government can be trusted to keep its promises, and they don’t believe Greece’s economy will ever be strong enough to pay the country’s debts in full. Yet, it’s politically toxic in Germany to suggest that some of Greece’s debt should be forgiven. Patience is nearly exhausted in Berlin as well as in Athens, and the next crisis may persuade political leaders to simply let Greece go.
In short, Greece and its creditors agreed this week to kick the can a little further down the road. But the realization is now dawning that without a much more creative solution—one struck between people who neither like nor trust one another, they’re kicking that can toward a cliff.
Within weeks, Greece, Germany, the finance ministers of other Eurozone countries, the European Central Bank, and the International Monetary Fund will be at this again, and Grexit remains a very real threat. Why is this crisis still building? There are three reasons.
One, everyone (maybe even the Greeks) now recognizes that Grexit is thinkable. In fact, with each successive round of this fight, the prospect of Grexit has gotten less scary in the rest of Europe. The risk that Greece’s problems will infect Spain, Portugal, Italy and others has fallen. And with the IMF now saying publicly that the current bailout plan will not help Greece pay back its many creditors, the number of Europeans willing to close the book on Athens is on the rise.
Two, after Greeks voted “no” to the conditions offered by creditors on July 5, Greek Prime Minister Alexis Tsipras seemed to hold a stronger negotiating hand. But when the rest of Europe continued to drive a hard bargain, Tsipras said “yes” to virtually the same offer. Many Greeks still like him, but they’ll now have a much harder time believing his promises to gain them new concessions. He probably won’t remain long in his job. Even if he does, his position is much weaker. And the creditors know it.
Three, the Germans have the loudest voice among Greece’s creditors because Germany has Europe’s deepest pockets and is holding the most Greek debt. Greeks hate the current deal, but Germans don’t like it either. They don’t believe Greece’s government can be trusted to keep its promises, and they don’t believe Greece’s economy will ever be strong enough to pay the country’s debts in full. Yet, it’s politically toxic in Germany to suggest that some of Greece’s debt should be forgiven. Patience is nearly exhausted in Berlin as well as in Athens, and the next crisis may persuade political leaders to simply let Greece go.
In short, Greece and its creditors agreed this week to kick the can a little further down the road. But the realization is now dawning that without a much more creative solution—one struck between people who neither like nor trust one another, they’re kicking that can toward a cliff.
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