Now that Greece has Received Emergency Funding – What Next?
The IMF and the ESM have Greased the Wheels of Economic Recovery
Greece has officially been given a clean bill of health by the International Monetary Fund (IMF). It has recently been confirmed that Greece has made good on its outstanding
debt and no longer owes any money to creditors over the short-term. Among others, Greece repaid €2.05 billion and is now on track to meet its obligations. The massive financing deal negotiated by Greece includes an €86 billion bailout from the ESM and IMF,
€50 billion Trust fund from privatising assets, €7.16 billion bridging loan, and €35 billion in European Union funding. Combined, these funds are geared towards wrenching Greece out of economic ruin, staving off a Grexit and settling the country’s financial
obligations. And one of the first beneficiaries of the bailouts is the banking sector. For the first time in over a month, Greek banks have been able to reopen and customers can withdraw funds from their accounts.
Prime Minister Alexis Tsipras may have staved off an imminent
economic catastrophe with the bailout package, but he is now facing growing opposition from within his own party. The far-left Syriza Party is vehemently opposed to austerity measures and bargaining with European creditors. The party has 149 members of
parliament, and 32 of them opposed the bailout. That leaves the populist Prime Minister with a slim majority of 123 MPs, but he still has enough support to maintain his hold on government. Even if snap elections were to be held, Tsipras would likely win over
his critics once again since he has championed the Greek cause in the face of overwhelming adversity. The bailout must be formally ratified before Tsipras can make any moves to strengthen his political position. Many of the proposals under consideration require
the adoption of EU-imposed measures to restore confidence in the banking sector. These include EU directives protecting deposits under €100,000, and rules governing the manner in which failed banks are financed. The EU wants to see stakeholders at banks footing
the bills, not taxpayers. But the Greek woes remain, since the cash-strapped nation must repay €1.5 billion to the IMF by September and €3.2 billion to the ECB by August 20th. The Greek banking sector has now limited cash withdrawals to a weekly maximum of
€420. This low limit is being fuelled by historically-high unemployment at 25%, with unemployment among the youth of Greece hovering around 50%.
The Future of a Common Currency Area without Greece?
Should Greece decide to exit the EU, willingly or not, plenty of challenges will face the country and the EU. Since there is no precedent for any country to leave the EU nobody is looking forward to opening this can of worms. However, the
Germans have shown a particular fondness for debt relief to Greece by favouring an exit from the EU. One particularly high ranking individual is Finance Minister Schaeuble. Should debt relief be granted, it would violate the terms of the single currency area.
The ECB, the IMF and other ranking bodies do not want Greece to leave and that much has been alluded to, time and again in the sensitive negotiations. Even a time-out – or a write-off of debt – has been floated, but the rules of the EU prevent such measures
from being adopted. French President Francois Hollande has been highly critical of any talk of a Grexit, and the re-entry requirements are so stringent that Greece would not possibly be able to return to the common currency area should it exit.