Greece has nothing to lose by heading for the exit
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Greece is paying a heavy price for handing over its money-printing press to the European Central Bank. Yesterday, the ECB announced it would not accept Greek government bonds as collateral on short-term loans to the country's banks. The measure will come
The new Greek government, under charismatic leader Alexis Tsipras, wants to renegotiate the conditions attached to the bailout package. That’s the mandate it got from Greek voters in the election on January 25. The bailout package has made Greeks poorer and the economy has fallen 25 per cent since 2010.
The Greek government would like to be forgiven some of its debt so that it can begin rebuilding the country with a clean slate. Its debt load of 320 billion euros – equivalent to 170 per cent of Greece’s GDP – can’t be serviced amid the falling GDP. If 50 per cent of its debt load was lifted, Greece would have a chance of getting back on the path to recovery. The Greek Finance Ministry has also proposed a debt swap – exchanging old debt for new debt with more generous terms.
But so far the Greek’s proposal for a wholesale debt renegotiation has fallen on deaf ears. The troika – the ECB, the European Union and the International Monetary Fund – will not budge, insisting that Greece stay on course by agreeing to fiscal belt-tightening measures, selling off state enterprises and repaying the debt on schedule without any debt forgiveness.
The deadline for Greece to agree to the troika’s bailout package is February 28. Failure to do so would mean the country being denied a fresh loan of 7 billion euros as part of the bailout package. Greece would then be cut off from international financing, at a time when its banks are already facing a run on deposits.
But this wouldn’t be the end of the world for the Greeks. Russia has offered to bail out Greece if it were to leave the euro zone. Greece can also borrow money from China, which has acted as an international lender of last resort before. Beijing assumed the role usually played by the IMF and lent money directly to Argentina and Venezuela. If Greece were to leave the euro zone, it would spell doom for the euro. Other countries unhappy with EU-imposed austerity measures, such as Portugal and Spain, might also follow in Greece’s footsteps to the exit. And if Greece were to announce a moratorium to its 320-billion euro debt, the banks of Germany, France and Italy would suffer. The euro system could face collapse even if the ECB intervened by printing unlimited amounts of euros.
Greece would be better off if it left the euro zone. It could then go back to printing drachma, and regain its monetary independence. Support from the BRICS’ countries would help Greece through the hard times. In due time, it would be able to secure economic recovery. The troika believes that it can corner Greece into complete surrender. But Greece seems to have the upper hand thanks to the game-changing presence of the BRICS’ alliance. Greece has nothing to lose by heading for the exit.
