Time is running out for Greece and its creditors to make a deal. After talks collapsed acrimoniously on Sunday night, a meeting of Eurozone finance ministers this coming Thursday (18 June) is perhaps the last chance for a breakthrough before a looming repayment deadline at the end of the month.
Even if a deal is reached, the fraught negotiations have already hurt the Greek economy, with worried savers pulling their money out of the country’s banks, and municipal coffers drained after the central government ordered all cash reserves be sent to the central bank.
For its part, the Greek government believes any deal that maintains the status quo will be unsustainable. The Greek economy has shrunk by about a quarter since 2008, and the country’s debt mountain represents almost double Greece’s annual GDP output. The ruling SYRIZA party argues that paying off Greece’s debts would require stronger growth than even the most wildly optimistic forecasts.
It is possible that the creditors might ‘blink first’ and extend the current bailout, allowing more time for talks to continue and offering much-needed funding from the European Central Bank to Greece’s wobbling banking sector. Given the political mood in many European capitals, however, it seems unlikely that Greece will see outright forgiveness – or a “haircut” – of its debt.
Few European leaders want to see a Greek default. However, the closer we get to the deadline the greater the chance of an accident or miscalculation forcing events beyond anyone’s control. If talks collapse on Thursday, it’s not inconceivable that we could see capital controls introduced as early as this weekend. And, despite reassurances that new Eurozone policy tools have been introduced since 2008, nobody is entirely sure how a Greek default and / or exit from the Eurozone might impact the European (and global) economy.
How should the Greek debt crisis be resolved? Should the current bailout be extended so talks can continue? Should Greece be given a “haircut” on its debt? Or would the Greek economy be better off outside the Eurozone? Let us know your thoughts and comments in the form below, and we’ll take them to policymakers and experts for their reactions!