Greece – a victim of disagreements

Monday, 2017-02-13 10:44:59
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The flag of Greece flutters in the wind as tourists visit the archaeological site of the Acropolis hill in Athens, Greece. (Credit: Reuters)
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NDO – Greece is becoming a victim of the disagreement between the Eurozone and the International Monetary Fund (IMF) regarding the handling of its debt crisis. Due to conflicting assessments about the economic situation in the “land of Gods”, the above creditors could "freeze" bailouts for Greece. That could lead to the situation where Athens would be unable to pay nearly EUR7 billion in debt next July, resulting in the declaration of default and rupture of the Eurozone.

In recent days, the IMF and the European Union (EU) countries have been deeply divided in assessing the economic situation in Greece to decide whether to continue disbursing funding to Athens or not. The two sides gave contradictory assessments on Greece’s economic situation, criticising each other of such assessments.

Controversy flared after the IMF released a report saying the debt issue in Greece is not sustainable and will only sour in the long run. The financial institution suggested that the Eurozone must reduce Greece's debt, while financial subsidies may still need to be added to restore the sustainable debt situation for Athens.

However, the IMF also said that creditors’ financial aid packages for Greece must be accompanied by its strong reform. IMF leaders called on Greece to speed up reforms, especially improving tax collection to restore the growth momentum of the economy.

After the IMF’s report on Greece’s economy, both Athens and Eurozone condemned it. Greek Finance Minister Euclid Tsakalotos said that experts from the IMF did not base the report on the latest data on the financial situation as well as the capacity of the Greek economy when drafting the report. Meanwhile, the president of the Eurogroup also expressed dissatisfaction by IMF’s assessment, saying the report represented outdated, obsolete views on Greek economic prospects and the IMF needs to be more factual in its reviews.

Disagreement between Eurozone and the IMF on Greece's debt problem has escalated since last weekend amidst the IMF maintaining its viewpoint and Germany, the country with decided say in the Eurozone, not accepting concessions. IMF Director General Christine Lagarde insisted in her speech in Washington that the IMF’s report on Greece's economy is completely honest and frank.

Meanwhile, German Finance Minister Wolfgang Schauble rejected the request from the IMF on debt reduction for Greece as a condition for the IMF to disburse a new aid package for Athens. On ARD TV channel, he claimed that according to the Lisbon Treaty, Germany cannot approve debt relief for Greece and warned that Athens is facing the risk of withdrawal from the Eurozone.

Eurozone and IMF’s continuing disagreement arouses concern that such lenders are unlikely to reach an agreement in their next meeting, which is expected to help Greece receive a EUR86 billion package to repay its debt on time and counter the threat of forcing the country to leave the Eurozone due to insolvency.

Greece is currently struggling with the worst ever economic crisis faced by the country. Since 2010, it has received three international bailouts. Greece's public debt now stands at over EUR300 billion, or about 180% of GDP, the highest in the Eurozone.

As planned, by July 2017, Athens will have to pay almost EUR7 billion to creditors. If Greece does not receive the next disbursement of funding in the bailout package worth EUR86 billion agreed in 2015, undoubtedly, it will be unable to fulfil the repayment obligation and must declare bankruptcy. This means that Greece will leave the Eurozone.

Amidst disagreements between the IMF and Eurozone on the Athens settlement, Greek Prime Minister Alexis Tsipras has warned the IMF and Germany that they should carefully consider the handling of the Greek debt problem.

In his 2017 New Year message, Greek President Prokopis Pavlopoulos stressed that Greece can and must regain optimism and hope. He called for increased support for those affected by the debt crisis and urged Greece to change its repressive policies that led to the current impasse by effective strategies to address its financial problems and ensure sustainable economic development.

However, if the Eurozone and the IMF’s disagreement cannot be solved, Greece will struggle to regain optimism and escape the current impasse. Greek insolvency without receiving the new bailout package is expected not only to push Athens deep into economic crisis but also even create a "domino effect" leading to the disintegration of the EU in the context of rising anti-EU waves across Europe, especially after the "Brexit earthquake" in 2016.