All Greek to you? Not to fret, for DollarsAndSense gets you up to speed with a summary of the situation in Greece & why the troika insisted Greece to meet their conditions before (temporary) financial aid was eventually given.
Overview
After a short-lived celebration of the elections in Greece just a month ago, the newly-elected parliament headed by prime minister Alexis Tsipras is facing a multi-faceted problem and time is running out. In Brussels, where the troika had convened to hold multiple talks failed to find common ground with Greece, therein lies the question: Is there no room for compromise?
The Crisis In Greece
The fact that Greece is in debt is of no surprise, for she has been knee-deep in the fiscal mire for years. Flashback to the year 2010, where the troika launched a €110 billion bailout loan to rescue Greece from sovereign default and cover its financial needs and when barely a year later, a worsened recession coupled with delayed implementation of the agreed conditions in the bailout programme by the Greek government saw the need for Greece to receive a second bailout worth €130 billion. Here’s the catch: No bailout programme lasts forever nor comes without conditions.
Flash forward to now, the year 2015 where Greece’s bailout programme is coming to an end yet Greek banks are already in danger of running out of money; Greece is growing desperate yet adamant in her demands even as the troika bodies are running out of patience.
In a nutshell, the new Greek government being priced out of private markets, now needs further financial help from her euro-zone counterparts but insists on leaving behind the bail-outs and “fiscal waterboarding” to which her predecessor gave in to. Simply put, Greece wants to start on a new page with the troika hoping that they could save her unconditionally as well as allowing her to leave the bail-out.
Greece VS Euro Zone
But their international creditors were not backing down. The euro zone stipulated that the price of such an aid was an extension of the current Greek bail-out and there can be no help without conditions. In other words, the euro zone were refusing to help Greece unless Tsipras and his parliament were willing to budge.
The Temporary Solution?
On the 20th of February 2015, the stalemate came to an end when Euro-area finance ministers reached an understanding that would keep bail-out funds flowing to Greece by extending aid for four months, buying time to figure out the specifics of Greek financing in the longer-term.
And in return? Greece finally learnt that to ask for help would mean to allow concessions and accept the conditions as termed by the troika. Indeed, Greece now knows that there is no free lunch in this world, that this financial aid is a two-way street.
What Happens When The Bail-Out Extension Ends?
It is unknown exactly how dire the financial situation is in Greece and while there was no immediate prospect of default even if she did not get a bail-out extension, she may scare the markets should she leave the restraints of a bail-out for the first time in five years. In fact, her continued membership in the euro zone will guarantee some form of accommodation from other member countries should they wish to prevent the euro economy from sliding any further.
All eyes are now on Tsipras as he attempts to draft out financial measures that will satisfy both the demands of the troika and his party in return for continued funding. Tsipras is walking on a tight rope and should his list of policies fail to satisfy the finance chiefs, this might trigger another round of emergency negotiations in the upcoming week.
However, it is important to note that the agreement reached to extend the bail-out for an additional four months symbolizes the power the troika wields over Greece, which ironically, was the very same tripartite that Syriza (left-wing political party that won the latest Greek elections) wanted to eliminate. Tsipras and his team may have many aspirations after winning the elections yet eventually, they realized that none could be fulfilled without a little give and take. Or as Jeroen Dijsselbloem, the head of Eurogroup puts it : “It cannot be one country that says ‘Can I have support but I will formulate my own conditions?’ ”
Glossary
Troika
Exactly who or what is the troika? Troika refers to a group of three in Russian and where news of Greece is concerned, the troika is made up of the three organizations which have the most power over Greece’s financial future –namely, the European Commission (EC), the International Monetary Fund (IMF) and the European Central Bank (ECB).
Fiscal Waterboarding
Waterboarding is a form of torture where water is poured over a cloth covering the face and breathing passages of a person, forcing him or her to experience the sensation of drowning. Interestingly, the term ‘fiscal waterboarding’ was first coined by Yanis Varoufakis, now the Greek finance minister chosen by Tsipras, who once drew parallels between the German austerity policies to a form of financial torture.
Latest on 29 June 2015: Banks in Greece has been ordered to be closed for the week to avoid financial panic and ATM withdrawal has been capped at €60.
Image from Oregon Live. Used with appreciation.
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