If you follow the news on Greece and Eurozone you certainly get puzzled by the amount of information stemming from different sources. Reports from Brussels, Athens, Washington and Berlin give you a sense of what is happening hour-per-hour in the country as if the entire world should and has to focus on Greece solely. No. The fact is that Greece is just a piece -a fundamental though- of the big puzzle of global race for power, from economy to geopolitics, between different centres and spheres of influence. Therefore, the problem Greece is facing has to do with the general policy of Eurozone and the European Union with regards to its economic and social policy.
In other words, both Eurozone and the EU have completely lost sense of their true and major foundations, which are the political and economic convergence, growth, employment and prosperity. In this context, the IMF, being the principal financial institution globally, has come to an EU country for the first time (i.e. Greece), implementing a policy of fiscal and budget consolidation that has completely failed.
As we are discussing on the prospects of Greece and the possibility of Grexit, it is interesting to “read behind the lines” and try to explore what the IMF is really planning to do with Greece from now on. As latest reports indicate that on April 24 Eurogroup there is no way to find a solution for Greece, another ad hoc Eurogroup is expected to draw the attention: that of May 11. And why is that? Because May is the month that Greece has to make the biggest loan installments since the second Memorandum of Understanding (singed on 2012) was put into force.
The interesting part is that the IMF released yesterday its latest debt projection for 2020, where for Greece the predictions are quite astonishing. For 2020, the Fund predicts that gross debt as percent of GDP will decrease by almost 40% (!), whereas for the next year it will be lowered by 10%. Simply speaking, if Greece were to receive the last part of its loan on May or to agree for another bailout package on June-July, it would be impossible to see its debt decreasing as dramatically as the IMF is projecting. In this respect, we have two scenarios:
As negotiations seem to have reached another deadlock these last four months, we might well predict that the IMF (along with Eurozone creditors) is planning to proceed to significant debt cut during the next months. In addition to that, and against with what was the case in 2012 and the PSI, Greece is not expected to receive another bailout package, meaning that the country after debt cuts, can efficiently handle its public finances without any external assistance. In this case, what the SYRIZA government was insisting on all these months (i.e. that Greece does not need any other bailout package) comes true and the rush of these months becomes fruitless.
A possible debt cut will be accompanied with the imposition by our creditors of additional austerity measures, meaning wage and pension cuts, breach of collective agreements (i.e. that are actually discussed these days between the government and social partners), and a new catastrophic era of deep recession. In this case, the government will step back and call for snap elections as it would unbearable to take new measures. In these elections SYRIZA will get majority, sweeping the opposition, and form a powerful government that will sit again in the negotiation table and seek for better terms. These terms will certainly no include new austerity measures.
In both scenarios, Greece has the upper hand.
And the Russian factor (again)
In the meantime, the rapprochement between Greece and Russia is a big pain in the ass for Eurozone and the EU. Why? For many reasons, but to mention a couple: a. Eurozone and IMF creditors want to keep Greece under their (economic) sphere of influence turning the government and the society incapable of breathing in the quest for political and economic alternatives and different sources of income to invigorate domestic economy; b. in case Athens and Moscow agree on the soaring of the Greek economy with 5 billion euros (i.e. considered as “package before gains” with regards to the Greek Stream), then the Greek government can put even bigger pressure to the creditors and give domestic market a big boost to move on to large-scale investments.
All things considered, one thing is certain: the burden lies on the shoulders of Eurozone. The mismanagement of the Greek crisis -with or without Grexit- will still be unbearable for the rest, especially as the majority of member-states cannot see the “big picture”.
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