Eurozone III – Greece Farce " To be in Euro or not to be "

In my two previous posts on the Eurozone i had written about the formation of the Eurozone, its benefits, Constraints & the challenges confronting it. The economic crisis of 2008-09 being the biggest challenge so far confronting the monetary union. But the challenge which has occupied much of the media space and the discussions in Brussels so far this year has been undoubtedly the Greece Crisis. It has managed to give sleepless nights to policy makers in Eurozone area and elsewhere. 
So what is this Greece crisis all about. How is it that the country which was associated with learning and knowledge (Aristotle, Archimedes etc) came to be associated with Sovereign  default? 
It all started not due to the financial crisis but due to years of deficits and high debt to GDP ratio (Spending beyond one’s means). The debt level reached astronomical heights (>100%) and the financial crisis crippled the nation and pushed it towards defaulting on debt repayment. 
The different sources of raising funds for the Government (Bond selling, private lending etc) became virtually impossible due to the downgrade of its Sovereign  rating to junk. This led to a formal bailout package under the supervision of the troika (European Commission, IMF & European Central Bank) in 2010. The bailout package of $110 Billion was meant to be till 2013 with conditions such as  Greece adopting austerity measures, privatisation of some Government assets and structural reforms. 
The conditions were never easy to implement while some economists termed Greece as non serious in implementing them. The result was 2nd and subsequent bailout and reliefs to the Greece Government. This came in the form of $130 Billion, lower rates for creditors and some hair cut on the face value of the debt. All this was again with rider of austerity measures. This bailout came into existence in 2012 and was supposed to be till December 2014. This bailout was followed by a series of events which made creditors and the monitors (European troika) believe that Greece won’t be able to successfully complete the bailout program as done by Ireland and Portugal.
In the meanwhile frustration was growing in the ranks of the Greece society as unemployment rate and economic slowdown trickled to the lowest level. This anger was channeled properly by the Syriza party which vowed to stand up to the creditors and monitors. The Syriza part came to power in 2015 and announced that it no longer violate the agreement reached by previous Greek Government. It requested for the negotiation of a new agreement. The new agreement is still to be agreed by both the parties and till writing this blog there was no sign of it happening anytime soon. The result of this stalemate was Greece not able to make a payment to IMF in early June. It now hopes to make the old and new payments due on June 30 with the last transfer of bailout fund of $7.5 Billion. The ECB meanwhile is watching from the sidelining and does its part of extending emergency lending to Greece Banks.
Economists and other experts see an eventuality of no agreement and Greece leaving the Euro area. But is it that simple for one major nation to go out of the Euro area. 
What are the political consequences of it? The crisis in Russia and its conflict with Eurozone is exploited nicely by Greece which have warmed up to Kremlin in recent months much to the frustration in Brussels. 
The hardliners in the Syriza party are opposed to any more austerity and prefer to exit Euro. 
Although a majority of Greeks want to remain in Euro but not at any cost. This makes the task of the Greece PM much tougher as he risks the fall of his Government in case of an unpopular deal. He has asked for a referendum on July 5th for the same. 
What happens to the creditors who owe money to Greece? Who is going to compensate them?
Will this have a cascading effect on other peripheral Eurozone countries who have similar structural problems as Greece? 
These are some of the questions which are quite difficult to answer. Only time will tell how the Greek saga unfolds in the coming days ! 
In my next blog i will try to analyse another country which doesn’t want to be part of European Union  although for an altogether different reason – Political ! 

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