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Daydreaming in Athens

DID Greece intend to transmit a reconciliatory message to the European Union by getting its outspoken finance minister Yanis Varoufakis replaced by a moderate Euclid Tsakalotos? The fact that the Yanis exit came after a resounding ‘No’ vote in the Sunday referendum on whether Greece should accept the austerity measures demanded of it for any further loan from its European creditors and IMF would suggest Prime Minister Alexis Tsipras hopes the EU leaders would reconsider their offer and agree to provide his country further loan to repay the outstanding debt. Both Greece and Tsipras are in a desperate situation, indeed. A majority of European Union nations had warned the Greeks that a ‘No’ in the referendum could mean Greece’s departure from the euro, but that did not deter them. Now, the majority in EU wants Greece to leave the euro. And the predicament of Tsipras and Greece is that they do not want to implement any more austerity measures but at the same time do not want to leave the euro. Will that be possible?

Among the few EU nations that do not want Greece to leave the euro is Germany. Germany is the largest creditor of Greece. If Greece gets out of the euro the repayment of loans might be in jeopardy. German Chancellor Angela Merkel feels a Greek exit would be far from cost-free for the EU and euro and severely damage the reputation of the eurozone. However, Merkel cannot enter negotiations on a new bailout deal with the Greek government without the approval of German parliament. Resentment towards Greece inside Germany has been growing; a significant number of the country’s politicians, officials and economists believe Greece should leave the euro. In Germany trust for Greek leadership has evaporated; many MPs simply do not believe Tsipras’ commitments to implement reforms. Many in the German political establishment had been hoping for a ‘Yes’ vote with Tsipras being replaced by a technocratic government. They do not know now how to deal with a man they mistrust.

The best thing that can happen to Greece and the European Union is of course some kind of reconciliation between them. Greece has to agree to implement some of the austerity measures. In times of severe financial crisis the government and people of Greece have to tighten their belts: there is no escaping that situation. As of now, it appears virtually impossible for Greece to leave the euro and resurrect its economy using its old currency drachma. The drachma will have little value in the international markets. International investments will dry up. Banks in Greece are on the verge of running out of money even to allow withdrawal of small amounts by ordinary customers through ATMs. To dream of Greece growing its economy entirely by themselves with banks operating with empty coffers can be nothing but a big bad dream. Now that Tsipras has made his point by mobilizing a majority of Greeks behind his ‘no’, he should work with an open mind on the bailout deal offered by creditors. At the same time the creditors should take a long-term view and exercise flexibility and redraft the terms of their bailout deal. That will not only save Greece, but also a lot of trouble for Europe and the rest of the world, not excluding India.

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