The attention remains focused on Greece and whether it will be exiting the eurozone. This week the Greek Prime Minister, Alexis Tsipras, met German Chancellor Angela Merkel, and the discussion had to deal with the request from Greece for an extension of the current agreement. A week ago it all seemed to be moving towards a lose-lose outcome. The (one and only) US business magnate George Soros has also expressed his conviction that we are heading in this direction.
Has the meeting between Tsipras and Merkel changed anything? Merkel went to great lengths to make it clear that acceptance or otherwise of the proposals of the Greek government does not depend on her but on the members of the eurozone as a whole, even if she cannot deny that Germany has a very big influence on the eventual decision.
What seems to be changing is the external economic and political environment in other countries and this may change the stance adopted by some countries towards the Greece issue. For example, in France there was the victory of the party of former French president Nicolas Sarkozy at the regional elections. It had been expected that the party of the extreme right, Front National, would win these elections, but it has been beaten to third place.
Does this reflect a change in the French electorate’s sentiment towards a more moderate position, which is less euro (the currency) sceptic? If there is less scepticism on the euro in France, will this lead to a more or less tolerant position in relation to Greece?
The UK is going to the polls in May and, according to the opinion polls, the most likely result is a hung Parliament. Although UKIP of Nigel Farage has stolen the show, it is not expected that he would get more than a handful of seats. Does this mean that the British will eventually turn out to be less euro (EU) sceptic?
Moreover, although it is accepted that the economy is doing relatively well, its inflation rate is very close to zero and there is still the fear of deflation. Will we need to think of deflation in less negative terms than we have done so far? Will Greece become a more or less important issue for the UK?
I fear that the more time passes, the easier it will become to get to a situation where Greece will be forced to exit the euro
News from other countries is also encouraging. German data on retailing is better than expected and Italy appears to have emerged from the recession. Will this make both countries more or less willing to accept the requests from Greece?
On the other hand, Greece has said it can only meet its commitments if it receives further assistance from the EU. The latest estimates are that it will run out of money around April 8. The level of trust between the Greek government, the ECB and the various members of the eurozone is at a very low ebb and the only way that trust can be regained is by Greece submitting a credible programme of reforms. So far, Greece has fallen short of this commitment and this is what has created the communication barrier among the different players.
If the various players in this issue keep on looking at the short term, the communication barriers will remain. Eurozone members will continue to suspect that Greece just wants to keep postponing taking a decision as long as cash continues to come in, and Greece will continue to suspect it is being forced to make sacrifices with no hope of ever recovering from the current situation.
If, on the other hand, the eurozone members, the ECB and the IMF on one side and Greece on the other side, agree on reforms that do take into account the social and economic impact, a solution would be found. The Greek government has to have the resolve to implement the reforms that the previous government had agreed to and did not have the courage to implement.
These reforms were not concerned only with reducing the salaries of public sector employees or reducing the minimum wage or reducing the state pension. They had to do with removing the shackles that were holding back the Greek economy. They had to do with the removal of privileges and fighting corruption and tax evasion.
I fear that the more time passes, the easier it will become to get to a situation where Greece will be forced to exit the euro. The only thing which appears certain is that unless new credible proposals are agreed upon between Greece and its creditors, this exit will happen.
The passage of time will provide an opportunity to the experts at the European Central Bank to plan adequately for such an exit. So the attention does remain on Greece, but we should also be looking at the ECB to see what its alternative plan is, if Greece defaults.