The unmaking of the Eurozone: Greece Story – Part II By Dr. Bobby Srinivasan and Dr. Sudhakar Balachandran

April 7, 2015 | Posted by bobbysrinivasan << back to blog

The newly elected left wing Syriza party in Greece seems to have lost its gusto and judgment and is now slowly slipping further behind in and its goal to restore economic dynamism, create jobs and achieve financial viability. This has increased the risk of Greece loosing control of the one thing they seem to unanimously agree on with its Eurozone partners, namely, maintaining the country within the Eurozone.

What was the Syriza party planned to achieve in the first place and which was declared in their election manifesto. They are

To reduce excess austerity imposed on Greece by the ECB in order to reduce their budget deficit.
To increase broader dynamism which is a GDP growth enabler and to engage in a serious structural reform.
To decrease or eliminate the debt hangover. Interest on these loans are formidable and slowly driving the economy in to bankruptcy.

The Greek government, instead of converting these intentions to action plan, have since engaged the European partners and Germany in particular in an overly public and confrontational manner.

Any meaningful opportunity to have a dialogue to reach an agreement with their Eurozone partners was lost because of nationalistic slogans and demagoguery. Different political agenda, internal political strife among the various stake holders and in general noisy nationalistic accusations have changed the current situation from an economic issue to a host of unsolvable political problems.

Besides, Greece has no plan B. It cannot walk away from membership in the Eurozone. It is not in a position to secure other sources of funding and it cannot survive for much longer without exceptional external support.

Thus the longer these issues prevail, the greater the risk that Greece and its Eurozone partners will lose control of the country’s economic financial and constitutional destiny. Public disagreements have prompted huge deposit withdrawals from banks thus sucking more oxygen from a system which is gasping for air.

For any solution to happen to this deepening crisis. Greece must start by toning down its political rhetoric and re-establish a technocratic negotiation. It could for example undertake steps like implementing structural reforms which is a common platform for all the stakeholders.

Nobody wants Greece to exit the Eurozone. But, then they are slowly loosing their relationships which is eroding confidence among its Eurozone partners. Athens has few allies. It has distanced itself from many peripheral debtor countries such as Ireland, Portugal and Spain. It is in the best interest of all Eurozone countries that sanity prevails among the Greek leaders. Taking an extreme step would mean major bank defaults and which in itself could lead us into another global economic crisis… similar to the one witnessed in 2008.

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