The Reemergence of the Greek Economic Crisis

The Reemergence of the Greek Economic Crisis

By E. Stanley Ukeni

One of the seemingly intractable issues that exerted negative pressure on the euro currency, and on the Eurozone economy, two years ago seems to have reemerged as a serious headache for the Eurozone policymakers in recent months. It seems like despite all efforts being put into cleaning up the Greek financial mess, the problem appears to persist.

A potential economically disruptive financial blowup in Greece has once again become a looming crisis for the Eurozone that the topic of Greece’s economic woes shadowed the discussions at the recently concluded meeting of the finance ministers from the Group of Seven (G-7) industrialized democracies which held in Dresden, Germany, even though it was not an official agenda topic for discussion.

 The countries that constitute the G-7 are United States, Japan, Germany, France, Britain, Canada and Italy. The group is an informal forum where the leading economies discuss economic and international policies that affect their countries. Although Greece is not a G-7 member nation, its principal creditor nation—Germany, France and Italy, are part of the group.

The Eurozone nation-state of Greece—facing dwindling financial liquidity, following two economic bailouts from the IMF and the European Central Bank, is still seeking for more bailout funds from its principal creditor institutions so it can avoid a debt default, and a possible exit from the euro currency union. This is even while balking at honoring the terms of the original bailout agreement.

There is a sense that the current political leadership of Greece—gambling on the prospect of a further widening of the rift between the key European leadership of Germany and France due to a philosophical difference on how to pull the Eurozone out of its intractable economic slump, decided to take a tough stance against the previously agreed terms of their debt repayment arrangement with its creditors.

The government in Athens seems to have calculated that the specter of a renewed economic crisis within the Eurozone would further polarize European leaders to the point that public and institutional sentiments amongst a majority of Eurozone countries would sway such European monetary policy institutions like the European Central Bank towards a more lenient approach to their repayment arrangement. 

However, this strategy seems to be faltering, as the positions of the key leaderships of Germany and France on fiscal accountability seems to be converging. In late 2014, the finance and economic ministers of both France and Germany moved decisively to reassure their increasingly uneasy citizenry that the two top European economies are going to be able to come to a collective agreement on a practical solution to Europe’s economic woes.

Then, at the end of May 2015—in an indication of a convergence of resolve amongst the core creditor countries and institutions towards the Greek debt crisis, a spokesperson for the IMF implicitly implied that Greece will be cut off from additional International Monetary Fund financial assistance if it misses a loan repayment to the crisis lender.

In the face of a continued hardening of the Greek government position on living up to the previously agreed terms of its debt obligations, the head of the International Monetary Fund, Christine Lagarde, hinted, a few days ago, to a the possibility of Greece’s exit from the Eurozone—an idea that seemed muted two years ago. She at the same time assured that such an exit from the monetary union would not necessarily lead to the demise of the single currency project.

At the just concluded gathering of the G-7 finance minister, the United States’ Treasury Secretary, Jacob Lew, appealed to the European creditor countries and Greek officials to reach a workable and practical arrangement on Greece’s finances as soon as possible. I suspect that his appeal is aimed at forestalling a possible European economic disaster, which may have a far reaching consequence for the still fragile global economy.

We all hope that an amicable solution to the Greek debt crisis can be found because a Greek exit from the Eurozone would certainly be painful for the entire European economic system in the short to medium term. I am cautiously optimistic that a solution to this seemingly intractable problem—that would assure the future of Greece within the Eurozone, would be found.

My optimism is largely based on the fact that, two years ago, the leaders of Europe—demonstrating such a skillful ability to navigate through an array of seemingly intractable economic issues than the euro skeptics thought possible, defied the negative predictions of an eminent demise of the common currency project.

Once again, the European policy makers should confound the doubters by demonstrating political savvy in dealing with the renewed specter of Eurozone economic crisis. I am confident that they will rise to the occasion.   

Authored by E. Stanley Ukeni, © 2015. All Rights Reserved.