If Greece exits Euro Zone, there is a looming fear that it may completely disintegrate.
Though an agreement has been reached between European Union (EU) and Greece for the time being; EU, especially Euro Zone (Group of countries with common currency Euro) has been facing serious threat of disintegration in the recent past. European countries and even other developed countries, including USA have seriously been concerned with the chain of events in ‘Euro Zone’. Greece, an important member nation of Euro Zone has been faced with serious crisis in the past few years. Burden of external debt and resulting austerity measures imposed by the creditors have posed a serious challenge there. Almost all sectors, especially social sectors like education and health have been the main victim of austerity measures, causing huge reduction in people’s incomes.
Election Issues in Greece
Victory of left wing anti-austerity party Syriza under the leadership of Alexis Tsipras, has been a cause of major upheavals in the economic structures and thinking of Greece; and whole of Europe was forced to rethink on the direction of policy measures to deal with slowdown in different member countries. In tune with the Greeks' mandate, the new government had virtually revolted against the Euro Zone’s austerity conditions, attached with the bailout package for Greece. New government believes that austerity measures imposed by other countries of Euro Zone, has been causing pauperization of Greeks. General belief of Greeks is that the troika of International Monetary Fund (IMF), European Union’s Central Bank and creditor nations, has not spared any measure to destroy Greece. Though they talk about taking Greece out of recession, Greeks are getting poorer, day by day. New government therefore argued for renegotiating debt, instead of austerity linked bailout package, so that growth may be given a boost.
It is notable that the deadline of austerity linked 240 billion Euro bailout package was reached on February 28, 2015. Greek elections were fought by the present regime on the issue of rejecting austerity measures imposed by the creditors. On the contrary, creditors believe that Greece is neck deep into debt and is not only not able to repay their debt (and interest), it is not even capable to finance its current expenditure.
New Greek leadership had been trying hard for extending repayment of loans, and renegotiation of new loans to facilitate flow of funds in the coming months. They did not want extension of bailout package; rather they wanted renegotiation of debt. In this endeavor they wanted postponement of the debt repayment, so that the economy may be put on the track.
If Greece exits Euro Zone, it will have a disastrous impact on the economies of Europe, USA and other developed countries.
Creditors’ view
Creditors including IMF and European central bank (ECB) believed in extending 172 billion Euros bailout so far, to Greece, linked with austerity conditionality attached. In the meanwhile, European Union's Central Bank, released installment of 5 billion Euros to Greece, so that day-to-day expenses could be met till a solution was found to the post elections deadlock.
On the other hand, European Union is also striving hard to find solution to Greece’s problems. Meeting of the finance ministers of EU member countries has been trying to find a solution to this deadlock. Looking at the quantum of the debt and bailout packages given to Greece, it was very unlikely that European Union may concede to the Greece’s demand of renegotiating debt. However, there was a pressure on EU too, to find a permanent solution to this problem, due to the stand taken by the new leadership of Greece, for keeping Greece within the fold of Euro-Zone.
Amidst this deadlock, there was also an economic logic for giving a chance to Greece’s growth, as the same would help raising revenue, which in turn may be used to repay loans. However, issue here was not merely relaxing the conditions of austerity attached with the bailout package, Greek leadership wanted a complete renegotiation of the overall debt to Greece. Perhaps this was not possible for the creditors. New Greek leadership maintained that they have the mandate from the people of Greece for the same.
Euro Zone can disintegrate!
In the meeting of the finance ministers of European Union, a mid way had been suggested, that is, bailout package and attached conditions of austerity measures be put off for the time being and a new loan be given to Greece; and in the meanwhile an agreement was reached out, which envisages an extension of the current Greek programme by 4 months and not six as Athens requested, against a firm commitment for specific reforms. New agreement is being looked upon as a big humiliation to the new regime of Greece, which was riding on the argument of the mandate received from the people of Greece.
It is possible that, for the time being thanks to the large scale efforts made by the leaders of European Union, disintegration of the ‘Euro Zone’ is postponed, however, with passage of time the possibilities of disintegration of ‘Euro Zone’ are rising day by day. It is notable that according to the international news agency ‘Reuter’, the collected opinion of the economists is that the possibility of exit of Greece from ‘Euro Zone’ is one out of four, which is highest, since the start of the ‘Euro Zone’ crisis of 2009.
However, this is also a fact that if Greece exits Euro Zone, it will have a disastrous impact on the economies of Europe, USA and other developed countries. This is also being feared that Euro Zone may totally disintegrate. In such a situation, what will happen to 'Euro', which is the second most important currency of the world; and how the new economic balance of the world may emerge; only future can tell?
Dr Ashwani Mahajan (The writer is Associate Professor, PGDAV College, and University of Delhi)
