The decision to keep Greece within the Eurozone was questionable for many. However, having opted to take this course of action, the international creditors and the government of the debt-stricken country should try their best to make things work.
Unfortunately, the early signs are not very pleasing.
For the first time in 5 weeks, the Athens Stock Exchange opened on Monday and it performed very poorly. Moreover, new data on factory production is in its deepest plunge for years.
When Prime Minister Alexis Tsipras finally agreed to the demands of its lenders in the previous month, he believed that he will be able to arrive at a bailout deal with the country’s creditors. However, as it appears to be, the next bailout program is starting to fall apart before it even comes to reality.
The International Monetary Fund stated in the past week that it couldn’t participate in the next bailout for Greece unless other lenders grant another round of debt relief. As expected, Germany and other creditors of Greece opposed to this, while at the same time, insisted that the participation of the International Monetary Fund is necessary for the next bailout program to happen.
The Greek Prime Minister has already started to do his part of the bargain. The parliament of Greece has already passed two controversial packages of difficult economic measures, which involve pension reforms and tax hikes.
The international lenders wanted those measures to be executed and are also demanding for new privatizations. Furthermore, Greece will have to pay the European Central Bank next month, and therefore most probably needs a bridging loan. With this, the European Union may enforce new conditions in exchange for bridging finance.
Amid all these events, the ruling Syriza party is on the verge of being divided. If that occurs, Prime Minister Tsipras might have to call an election. As of now, there is actually little hope that Greece will experience a broader economic recovery.
It is unsurprising that there is some degree of uncertainty, considering that Greece has repeatedly defaulted on loans and commitments. It is also just normal for creditors to impose conditions and strictly monitor if Greece religiously complies.
In my opinion, lenders of Greece should now agree on the belief that debt relief will be coming, provided that Greece tries to keep its promises. If not, the new bailout program will most likely fail.
The claims of Germany and other creditors that the rules of the Eurozone prohibit debt relief is kind of difficult to take seriously. The costs of persisting with the rule are too high. It can further damage the economy of Greece, result in the failure of the new bailout program, and eventually lead to nonpayment of debts.
This is most definitely not what Greece’s creditors wanted to happen. Thus, EU creditors will have to budge and stop doing things that will most likely lead to that outcome.