Greek Debt Crisis: How The ‘Very Difficult’ Negotiations Will Decide The Fate Of Eurozone

Posted on July 13, 2015 in GlobeScope, Politics

By Shinjini Devbarman:

It is a tumultuous time for the Greeks. The new set of reforms put forward by the creditors have left the ruling party Syriza reeling. A week ago, the Greeks, in a referendum had rejected the reform demands made by Europe on the grounds that they were too onerous to accept. Within a week the Greeks have been disappointed by the government which seems to have taken a u-turn with the negotiations of a bailout deal.

Image source: EPA/Armando Babani
Image source: EPA/Armando Babani

A summit is underway in Brussels, the headquarters of the European Union, where Greece’s PM Alexis Tsipras and top Greek officials are meeting other European leaders to negotiate a bail out deal with the creditors. Whatever happens in the summit will decide the fate of not only Greece but the entire Eurozone. Without a deal Greece could crash out of the Euro and the austerity measures on the Greek could get even harsher.

Eurogroup leader Jeroen Dijsselbloem has described the negotiations as “very difficult“. The ministers are apparently discussing at length the option of easing Greece’s debt burden as long as Athens enacts legislation immediately to reform taxation, pensions and administration.

The draft proposals are already putting Greece in a humiliating position even as the Euro leaders are divided in their approach towards Greece debt crisis.The demands of the creditors put forward in the proposal, which has been described by economist Paul Krugman as “madness”, includes tax and pension reforms among others and need to be in effect by Wednesday. Greece, at the offset, could either accept these reforms or agree to a “temporary Grexit” to restructure its debts.

The Greek economy is already shrinking, with unemployment having risen to 25%, and it will keep shrinking under the draconian austerity measures. What Greece is facing right now is a serious liquidity crisis with € 500 million left, which means € 45 per person.

The Greeks feel betrayed by Tsipra’s acceptance of the austerity measures. A week ago the referendum result sent waves of optimism across the country. People had put their hope with the government hoping that the negotiating will be in the favour of their interests. The negotiating did continue, but by Tuesday the government was already in Brussels (the headquarter of the European Union), where it was met with an even harsher bailout package.

Syriza had come to power in January with the promise that it would liberate the people from the unsustainable austerity measures. However Tsipra’s u-turn has once again brought people on streets protesting against the possibility of new austerity measures. The party is showing signs of disintegration as almost 17 MPs left their ranks before the weekend. They are opposed to the austerity programs not just ideologically but also because they are convinced that the austerity program would only add to the already existing socio-economic problem.

People protesting on the streets are forcing the government to choose between “capitalists or working class”. They don’t want the government to cave in to demands of the creditors. The financial crisis in Greece has turned into a humanitarian crisis. It is the ordinary people’s lives which are at stake here. People have been queuing up at ATMs which have been running out of cash, as capital control has been in force for the past two weeks.

Consequently, people are starving, and a general feeling of helplessness among the Greek people prevails. The Greeks feel that Syriza is negotiating against the people’s interest and well being.

The referendum of 5th July was never supposed to amount to anything. It was merely a political experiment meant to restore faith in Syriza government and the Prime Minister Tsipras. Given the fact that the Troika had already pulled back its bailout offer on 30th, the referendum was only a symbolic one. For the majority of the voters a ‘no’ to the referendum only meant that they were opposed to austerity measures, not to the idea of a Greek exit. And for the ‘yes’ voters, the decision meant that they were opposed to a Greek exit. The question of whether the Greeks wanted to continue with the austerity measures or not was a trick question to begin with – why would the Greeks say yes to more austerity measures when it is already causing so much damage to their lives? Moreover the referendum, built up on nationalistic sentiments, is not really helping Greece’s case at the summit. The result of the referendum is being interpreted as a no to Euro zone.

When the majority of Greeks said ‘No’, it symbolized standing up against the “propaganda of fear” which the Eurozone leaders had been trying to instill. The austerity measures of the Troika will never allow Greece’s economy to grow out of its debts. The debt simply cannot be paid, primarily because it is too much. As long as they are there, the country will never flourish economically.

Greece’s position will define Eurozone’s future. The crisis in Greece and the positions taken by the different countries in the summit have already revealed the problems within the Eurozone. The Eurozone is drawing further apart instead of coming together. The grand idea of a united Eurozone is facing ambiguity because if there is a Grexit, Greece will not be the first and the last country to leave the Eurozone. A Grexit, would have a domino effect on other economies with high debt levels (e.g., Portugal, Italy, Spain).

Furthermore, Germany’s proposal for a temporary Grexit shows that they are open to the idea of a Grexit. And why wouldn’t they be? As long as Greece remains a part of the Eurozone, Germany which is the healthiest economy in the Eurozone will have to bear the burden of Greece, a weaker economy. Hence, they are putting Greece under a lot of pressure. It seems like Germany has lost faith in Greece’s ability to bounce back and they are not willing to cut them some slack.

All in all, the next few hours are going to be very crucial. It will not only decide the fate of Greece but also the entire Euro zone.