It kind of felt a bit like déjà vu with the latest round of financial bailout talks between Greece and the rest of the EU this week, but there’s still a lot of talk in the media over the situation, because of the sheer potential gravity of things. This had been fuelled by a lot of tough talk from both sides of the discussion divide and it looked likely that the talks would go to the wire before there was a resolution and that’s exactly what happened. However, a deal has now been struck to grant Greece a 4 month extension, but the short term nature of it implies that there will be much more crisis talks before the year’s out.
In short, Greece currently has a €240bn (£178bn) bailout plan that they’ve been struggling their way through since it was put in place last year. The problem is that they can’t make the payments and the associated austerity measures have been making life difficult for the everyday people in Greece. This has put them in a tough situation in which they needed both an extension to the bailout, as well as significant changes to the programme to keep their voters happy.
Obviously it’s one of the biggest issues the European economic union has had to face in its history, but the reality of the situation is that it’s in the best interests of all parties to come to an agreement, which means that Greece were well placed to be granted a certain amount of concession in terms of their bailout. Although, the EU are determined to continue with the terms of the current package, which includes the economic measures that Greece must adhere to that are seen as negative by a large amount of the people in Greece and the Syriza led government.
With the new coalition government only recently coming into power during Greece’s economic crisis, there was always going to be a shakeup of the bailout, but it’s come pretty fast just a month or so after the general election in January 2015, forced by the deadline for the existing bailout programme at the end of February 2015. However, talks initially broke down on the 16th February 2015 when the Greek finance minister Yanis Varoufakis rejected the latest offer, and with the deadline date looming, the clock was ticking to reach an agreement.
As with any significant political talks, there was a lot of back and forth with the EU seemingly adamant that Greece will need to honour their existing bailout programme and the Greek authorities determined to see change, following up on the campaign promises that helped them win the election. The comforting news was that both sides appeared to be keen on getting to some form of resolution, with Varoufakis reiterating that he was prepared to back a new deal under the right conditions.
The problem though is that both sides have been leveraging everything they have to make sure it’s as favourable as possible to their interests, which has led the media to latch on to the more extreme ends of the potential implications spectrum; Greece exiting the Union. For the EU, there’s a steadfast resolve as they try to retain economic stability and faith in the principles and solidity of the European Union. For the Greek authorities, they’re adamant that there’s got to be at least some relaxation of austerity measures if they’re people are to get somewhere close to the changes that they’ve voted to sweep in, including wages, pensions and privatisation.
Both sides had been acting like the prospect of Greece dropping out of the EU was something that they could withstand, but with serious economic difficulties on the cards for each if that were to happen, the deal was crucial to safeguarding the solidity of the union. In the short term, there was always going to be a solution somewhere in the middle, but it definitely won’t be the last time this year that the Greek government enter into serious negotiation talks with the EU, especially as they plan to press ahead with the reversal of austerity reforms put in place by the previous government as part of the bailout plan.
For anyone wondering why the situation is so important to the rest of Europe and the world beyond, the truth is that in world economics it only takes a small blip on the interconnected financial links between countries and banking institutions to have a significant impact on everything around it. In Greece’s case, this means the rest of Europe with questions about the stability of the Euro and the resulting decline of the Eurozone economy as a whole, along with the impact of the potential collapse of the Greek banking system, which is losing money rapidly under the current situation.
It also has serious ramifications for other countries in the EU in terms of their own austerity measures with Spain and Ireland working on programmes of their own. Now that there appears to be concessions in Greece, it could lead to a stronger resolve to move for concessions for them too, which could result in a slower return to economic progression for the whole of Europe. However, for the time being Greece has a financial life line and a four month window of opportunity to make inroads into turning things around and convincing both the people of Greece and the bureaucrats in charge of the European Union that they can steer the country out of the crisis.