Jan 28th 2015
Newspapers in the U.S. talk about the victory of the Leftists in Greece and the uncertainty it will bring into the whole Euro zone. What is the correlation between the Leftists’ victory and the certainty of the EU? And what kinds of impacts it will cause?
After the sub-prime mortgage incident, Greece has been through the harsh economic situation. The economic damage was so severe that ECB (European Central Bank) and IMF provided bail-out programs and helped the Greek government escape the deflationary shock in the market. But, these bail-out programs and credit lines are not free; the Greek government needs to repay its debt. The problem is that the tension between the New Greek party (Syriza) and other European countries. Yannis Behrakis from Reuter says, “European leaders have said Greece must respect the terms of its 240 billion euro bailout deal, but Tsipras campaigned on a promise to renegotiate the country’s huge debt, raising the possibility of a major conflict with euro zone partners.” Additionally, many Greek voters are upset about the Smaras’ government for consent to the terms of 240 billion euro bailout, including severe expense cuts and tax hikes.
However, I don’t think that the Greek government can avoid its mandatory of repayment; many people also agree with the statement. Therefore, the interest rate, repayment amount or its period really matter in renegotiation. If the country tries to postpone the deadline too late or lower its interest rate too much, the tension between Greece and EU will be longer and harder. It will cause another bad shock in the Greek market. In addition, whether the renegotiation is successfully completed or not, other countries won’t be willing to trade the Greek bonds or currency. Why do people or countries avoid the Greek funds? It’s because renegotiation means that Greece doesn’t keep its agreement, losing its faith (or economic ability). Lower currency and bonds will make the Greek financial market suffer again.
Furthermore, Wall Street Journal argues “if negotiations to revive the bailout falter, Greece would be without an umbrella of protection. That program ensures that Greece’s government has access to a stream of cheap financing, and ensures Greek banks have access to cheap funding from the European Central Bank.” Even worse, Greece faces about 7 billion euro repayment which mature in July and August. But, the government doesn’t have the cash yet, and many economists worry that the failure of repayment finally leads to Greece’s exit from the Eurozone.
The future of the Greek government seems so harsh for the Greek and its government. “…Greece has undertaken broad economic overhauls and cutbacks that have helped mend its public finances and … deep recession. Those cutbacks have come at a cost: Some 25% of Greeks remain jobless, while a quarter of households live close to the poverty line” (WSJ). Consequently, Syriza needs to solve various conflicts in the nation and outside of the nation. Considering all situations, I think Greece still needs a lot of time to be recovered unless surprising economic booms (like internet boom) will occur.