After some frenzied, down-to-the-wire negotiations with its European creditors in February, Greece’s leftist government managed to strike a deal to extend the country’s rescue financial package. Or, at least, half a deal. Really, it was more like an agreement to agree to terms on which Greece would get new loans to keep itself afloat at some point in the near future, which required lawmakers in Athens to submit a series of economic and budget reforms for approval late this month.
That has not happened yet and will probably not occur by the time the eurozone’s finance ministers meet Friday in Latvia to discuss Greece’s reform efforts. So, in the coming weeks, we can expect another round of chatter about a potential Greek exit from the currency union, and whether such a move would set off a chain reaction causing financial turmoil across the rest of the region. Sample headline from CNBC: “Greece’s fate hangs in balance amid contagion fear.”
What are the chances that a breakup is in the cards? I’d guess they’re still fairly small. The two sides still disagree on much, including demands that Greece reform its public pensions, sell off government assets, and loosen labor laws to make it easier to fire (and theoretically hire) workers. But, according to sources close to the talks, creditors are willing to make a number of concessions to avoid the unpredictable fallout of Greece leaving the euro. As Bloomberg reports, “The red line is that the Syriza-led government shows readiness to commit to at least some economic reform measures.” Sounds like a fairly low standard, if you ask me.
The fact that Greece owes a 780 million euro payment to the International Monetary Fund in May has made the current round of negotiations seem a bit more urgent. However, the government seems to have found a creative, if temporary, solution to avoid defaulting on that obligation even if it can’t finalize a bailout deal in the coming weeks: confiscating about 2 billion euros worth of cash held by local governments. That should be enough to pay its international lenders, as well as public employee salaries and pensions at the end of the month.
Meanwhile, youth unemployment in Greece is still above 50 percent. Can you blame them for playing chicken with Europe if it means they even get a tiny bit of relief from austerity?