On Jan. 25, 2015, the left-wing Syriza party effectively took control of Greece as the party won the majority in Parliament, and its leader, Alexis Tsipras, taking office as prime minister. With these changes, the prospect of Greece leaving the eurozone has become increasingly possible. However, Tsipras has insisted that Greece remain in the euro.
The largely anti-Germany narrative in his Tsipras’ speeches has created rising tensions among the nations in the midst of Greece’s negotiations for debt assistance with Germany and the European Central Bank (ECB). Recently the ECB has declined Greece’s pleas to resume lending to Greek banks. This month, Greece owes €6.5 billion in debt payments. Failure to secure the assistance requested could cause market turmoil similar to that of the 2009 sovereign debt crisis, some fear.
Over the past five years, Greece has worked with the ECB to make their economy more competitive. Tsipras’ recent actions to raise the minimum wage, abandon privatization and hire 12,000 public sector jobs would nearly erase all previous progress.
From a market standpoint, an ideal solution would be for Greece to exchange structural reforms to the EU for being placed into a debt forgiveness program allowing Greece to focus on becoming more economically competitive without having to worry about the mounting debt. The left-wing agenda that Tsipras and the Syriza party push would never allow other countries to have control over Greece’s finances.
Another possible solution, though seemingly unlikely: Greece leaving the euro altogether. Not only would this move be detrimental to the members of the EU, but it would also cause market volatility around the world. However, given the recent negotiations to extend the bailout program, a “Grexit” is unlikely for now.
The most likely solution for Greece’s short-term problems is a give and take negotiation between Greece, the ECB and Greece’s creditors. Neither party wants Greece to leave the Euro. There needs to be a system in which Greece is able to receive debt financing from the ECB. Except, the ECB has already stated that they will not provide funds unless Greece works with their creditors on new payment plans. Under the Feb. 28, 2015 negotiations, Greece is allowed a four-month loan extension; they are also required to crackdown on tax evasion. After these four months, European finance ministers are uncertain what the future holds for Greece. Many are wary of the radical policies of Tsipras. however, one thing remains certain: If Greece ever hopes to recover, they need to focus on a long term recovery or forgiveness program focused on economic recovery and structural reform.
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