The negotiations between Greece’s new leftwing government and the country’s creditors on how to ease its debt and austerity programmes aren’t over – they have only been stalled. Last last month they secured a conditional lifeline that wins it a four-month extension until the end of June. Alexis Tsipras, the Greek prime minister and leader of the Syriza party, had to give in somewhat to German-led pressure to stick broadly to the terms of its £176bn bailout. The next biggest challenge, apart from persuading the IMF and the ECB that his party’s reforms are the right way forward, is convincing the Greek people that the recent negotiations are the right course of action. After all, Syriza came to power promising to get rid of the status quo but all they really have done so far is to extend it.
The standoff will continue. Four months from now we will be in the same position and the heated negotiations will continue. The EU will still refuse to forgive Greece’s huge debts, possibly meaning a slowdown over the euro currency and the possibility of Greece leaving. Should Greece save us all the hassle and leave the euro or is it best for all concerned if it stays on board? Should businesses across Europe – including in the UK – be worried by a possible Grexit?
“The EU should ask Greece to leave,” Philippe Gelis, CEO and co-founder, Kantox
There is a lot at stake in the current Greece-EU negotiations. If the EU is seen to be too lenient on Greece in its bailout terms, it could lead to other peripheral nations seeking similar concessions, fuelling uncertainty in the euro and the Eurozone among investors. However, if the EU does not agree to Greece’s proposal, Greece could potentially default on their debt repayments and leave the euro. Such an event would see the euro’s value ultimately free fall in the FX market. Any confidence currently remaining in the euro would evaporate and the stock markets of peripheral countries would also decrease in value. A sudden Greek exit would also likely fuel euro-sceptic movements in Europe. In the UK, it would increase the chances of an exit from the European Union.
To avoid a shock Greek exit, European leaders have to send a strong message to financial markets and the world in general. The credibility of Europe’s leaders is on the line and they need to show that they have control of the situation. Though rather than risking uncertainty, what the EU should do is to ask Greece to leave the euro in an organised way, and build the Eurozone only with reliable partners.
Whatever happens, uncertainty for the euro is virtually guaranteed for the next few weeks or months and that complicates business decisions with Eurozone suppliers and customers, for UK businesses. UK exporters will see their exports become less competitive should the euro continue to tumble against the pound.
“A Grexit isn’t yet on the table,” Alberto Alemanno, Jean Monnet professor of EU law and risk regulation, HEC Paris Business School
Neither the Greek government nor its Eurozone partners want to see Greece leaving the Eurozone – or a “Grexit” as it has become known. However, if they cannot agree a way forward then it may be unavoidable. The recent developments show, once more, that Greece leaving the euro is not a zero-sum game, but it would be lose-lose for all those involved as countries stand to all gain or to all suffer together. The likelihood of it actually happening reduces as time passes and serious questioning of Greece’s membership to the Eurozone remains largely absent.
Syriza – the coalition of left wing and radical left parties and currently it is the largest party in the Hellenic Parliament – clearly wants Greece to stay in the euro, despite some difficulties in explaining this to its electorate. Only a few economists and parties want a Grexit but they do so because they know that it won’t actually happen, otherwise they would change their mind. The Syriza-led Greek government is naively playing the role of the brave, pushing the rest of the EU to think outside of the box when it comes to look for a new recipe to fix the EU economy.
The latest negotiations show that the Greek government is more programmatic and less idealistic that it seemed before the elections. Despite the leather-jacket Economic Minister’s powerful rhetoric, we can expect more ‘business-as-usual’ than disruption in the EU-Greece relationship. No country has ever left the euro and Greece’s exit has not yet been on the table – and nor should it be.