After months of all bluster with no muster, Greece’s bluff-and-wait strategy is about to end in disaster unless a deal is struck with international lenders, world press reports say.
Greece Has Two Options: Deal or Chaos
CNBC – Nicholas Economides
With only days to go before Greece is unable to pay its external loan obligations, some argue that a Greek default within or outside the euro is the best outcome. But no matter how mediocre an agreement is for Greece, a deal of any sort is better than bankruptcy.
The newly elected Greek government missed its unique opportunity to sign an agreement earlier this year that might have been “better” than the one proposed to the conservative government originally.
It lost this opportunity because first, the Greek government did not have ready a program that could be implemented, and second, it preferred to speak in a revanchist manner about Germany to the gallery of its left platform, rather than to its European partners.
During the four-month ongoing negotiation, the Europeans toughened their position, noticing that Greece was often off-subject. When Greece and the Europeans could not reach a deal based on the technical analysis of the data, the Greek government spoke of the need for a “political negotiation.”
When the prime minister could not reach a deal with his counterparts, the negotiation was restarted from scratch at the technical level. And this cycle was repeated again and again. Four months passed this way….
Bankruptcy and transition to a new drachma would be a major disaster for Greece, comparable to the “Asia Minor Disaster” when Greece lost a war to Turkey in 1922 and had to accept two million Greek refugees that used to live in Turkey.
Greek banks would collapse from withdrawals of scared people, uncertain of the exchange rate between the new drachma and the euro.
The heavily devalued drachma would immediately make Greeks much poorer as they would then only be able to buy half or one-third of what they used to under the euro.
Shortages in necessities such as pharmaceuticals and fuel would be the rule and not the exception. And printing too many new drachmas would create hyperinflation, new devaluation, and poverty….
As we reach the last few decisive days, it is up to the Greek government to seal the deal with the Europeans. If it does not, it will be responsible for the chaos that will follow.
Europe and Greece: The Damage is Done
Bloomberg – Clive Crook
With both sides said to be drawing up final proposals, and a definitive debt crunch thought to be imminent, the months of brinkmanship over Greece may at last be drawing to a close. But who knows, really?
You might think making this shambles any worse would challenge even these principals. I don’t know. I think they’re up to it.
Whatever happens, take a moment to reflect on the damage already done during the stalemate — damage that will persist even if the brink isn’t crossed, and a deal is done to avoid a Greek default plus exit from the euro system.
First, Greece’s economic situation, which was bad to begin with, has deteriorated further. Savers have been withdrawing deposits from Greek banks.
Investors have hammered the stock market. Under these conditions, few businesses choose to invest or expand. Despite cheap oil and a weaker euro, the Greek economy has fallen back into recession.
Second, as a result, the country’s bad fiscal situation is now worse. Whatever fiscal targets are eventually agreed to — assuming that happens — will be harder to meet.
A deal sufficient, four months ago, to stabilize Greece’s public finances and restore growth might no longer work. Greece already has two failed bailout programs to its name. The stalemate makes the failure of the next program, if there is one, more likely.
Third, the world has learned that exit from the euro system is not just thinkable but has actually been advocated, as a kind of disciplinary measure, by officials in Germany and other countries.
It’s widely understood that if Greece leaves the euro system or is forced out, attention will turn, sooner or later, to the question of who’s next. Every serious economic setback will raise that question.
Less widely understood is that much of this damage to the euro zone’s foundations has already been done, and is irreversible. Once you think the unthinkable — debate the pros and cons, start to plan for it — there’s no going back.
Greece and Creditors Play The Ultimatum Game
Another crisis of solvency, and Greece is – once again – described as confronting a fork in the road. Athens must finally choose, runs the argument of its creditors, whether it is ready to face up to its responsibilities, or whether instead it prefers to wish away the stack of red final-reminder bills piling up from the IMF, demanding €1.5bn this month.
If Greece plumps for denial, however, it should not assume that it can rely on the flow of finance from the north, which is all that is keeping Greek cash dispensers going. Instead, Greeks will have to prepare to slip out of a euro they overwhelmingly wish to keep.
There is something in the creditors’ account of events, and yet much is omitted. It neglects to mention how austerity has steadily smothered day-to-day life.
Greece has not merely suffered a recession but a full-blown Grapes of Wrath-style depression, with social and political convulsions to match.
The unemployment rate has been 25%-plus for years, with a similar proportion knocked off national income. The “medicine” swallowed so far has proved to be poison.
The “Greece must grow up” story also glosses over something else: the frightful choice confronting the rest of Europe. For Greece there is a real dilemma, albeit between two unappealing options.
A new drachma would be a leap in the dark, with the disruption of contracts certain and a wipeout of savings likely, even if devaluation could also offer a possible path back to recovery by pricing Greece back into tourism and other markets.
Who is to say whether this mix of the ugly, the bad and the good is worse than the dismal certainties of more stagnation? For the wider eurozone, by contrast, the costs of Greek exit far exceed the costs of preventing it.
Yes, bold debt forgiveness may provoke pesky requests for similar help from others in future, but the alternative would mean having to defend for the rest of time a supposedly permanent currency which had proved liable to crumble.
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