Why Greece Is Renegotiating Debt Reforms

Greece faces bankruptcy in just a matter of weeks, unless it can negotiate a debt deal with its creditors soon. The troubled nation's debt crisis is creeping back into the news this week as Prime Minister Alexis Tsipras is scheduled to address the Greek parliament Monday evening on the status of the negotiations. Germany, Greece's largest creditor, announced Monday the eurozone would not provide the struggling economy with further aid until Greece has submitted a more detailed reform plan.

"We need to wait for the Greek side to present us with a comprehensive list of reform measures which is suitable for discussion with the institutions and then later in the Eurogroup," Martin Jaeger, German finance ministry spokesman, said Monday.

Here are four things to know about Greece’s predicament.

Why is Greece renegotiating its reforms?

Europe’s Greek drama continues to play out as Greece and eurozone finance ministers attempt to reach agreement over the country’s reforms in order for Athens to secure its massive 240 billion euro ($270 billion) bailout program. The negotiations ended in a standoff over the weekend as the Greek government and its creditors, including the European Commission, European Central Bank and International Monetary Fund are locked in negotiations over the country’s reform proposals. The plan must be approved by all creditors to unlock the latest 7.2 billion euro ($7.82 billion) wave of financial assistance.

Athens could be pushed into default if it fails to repay the 460 million euros ($502.5 million) it owes the International Monetary Fund on April 9, Deutsche Bank (XETRA:DBKGn) said last week. Meanwhile, Greece could run out of money in just a matter of weeks on April 20 if it does not secure more aid, Reuters reported last week, citing a source familiar with the matter.

How did Greece get to this point?

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Greece renegotiated the terms of its $270 billion program last month after its far-left Syriza Party won elections in January. Before the national elections, the Syriza Party, led by Alexis Tsipras (now the prime minister), staged a revolt against the budget cuts and other austerity measures under the bailout arranged by the European Commission, European Central Bank and International Monetary Fund (known as “the troika”). Greece's previous conservative government had agreed to the bailout terms.

Greece and Eurogroup finance ministers reached a deal in February that would extend the country's bailout program until June. However, under the terms of the agreement, Greece is required to submit an economic reform package that must be approved by its creditors before Athens can receive the remaining bailout money that it needs to avoid bankruptcy.

What is Greece promising in exchange for loans?

Although the new government had promised to eliminate an unpopular property tax, it is likely to stay part of the final plan, the Financial Times reported. However, the list of reforms over the weekend failed to include reforms to labor laws and Greece's pension system, two key areas that creditors have said are essential to finalizing the bailout program. The list included a lowered target of 1.5 billion euros ($1.6 billion) in proceeds from asset sales this year and a proposal to set up a bad bank with bailout funds returned to the eurozone in February, a Greek finance ministry official told Reuters.

What’s likely to happen?

The short-term cost of failure to resolve the issues is likely to be very high in Greece. It would include rebuilding the nation’s banking system if it defaults and leaves the eurozone. "I am not sure how Greece’s banks can survive the withdrawal of the country from the euro and from the ECB umbrella," said Gary Burtless, senior fellow and labor economist for the Brookings Institution..

In the long run, Greece may fare better with its own currency, which would surely be cheap in international markets. That would help make Greek tourism and exports very competitive in world markets, and spur an economic recovery, Burtless says. But the Greek government would also face a severe recession.

“If eurozone voters make a reasonable accommodation and reduce Greece’s required net payments, they can avoid another crisis and help one of the union’s weakest, poorest members. However, I think a lot of German and Finnish voters feel differently,” said Burtless.