Somehow, the Greek soap opera will end soon
Forget the puns about Greek tragedy. What's unfolding regarding Greece's crippled economy is more like a soap opera, due in part to rising tensions between the leftist government in Athens and the so-called troika of the EU, the European Central Bank and the International Monetary Fund that controls Greece's financial bailout package.
Greece has been a member of the EU since the early 1980s, and it adopted the euro in 2001. But even before the start of the Great Recession and the ensuing European debt crisis, its national economy had been considered compromised by what one economic analysis called the nation's "bureaucratic inefficiency, and a pervasive culture of corruption."
When the Greek economy really got ugly starting around 2009 and the global financial downturn deepened, Greece found itself in crisis, unable to pay back its loans and in danger of default and economic collapse.
In an effort to shore up its battered economy, Greek officials agreed to a $270 billion economic bailout package. But this past January, Greece's new government demanded some relief from its creditors while promising to deal with the dire financial straits many of its citizens are still facing.
Which brings us to this week. On Friday, eurozone finance ministers are scheduled to meet in Riga, Latvia, where they'll work on efforts to break the current stalemate between Greece and its creditors. Those talks come ahead of the April 30 deadline when Greece and the troika are scheduled to reach a deal on the reforms the two sides agreed to in late February.
As Reuters points out, missing the next week's deadline has no practical implications for the two sides, "except political embarrassment."
But economic analysts believe time is running out for Greece and its creditors to find a concrete solution.
"Recent news (including a number of public statements by policymakers in the context of the IMF-World Bank Spring meetings) suggests that the current negotiations between the Greek government and its official creditors are stuck," notes a recent Citi Research report, "and that the risks of a failure of these negotiations are material and have risen further."
The Citi Research analysts also outlined four scenarios they could see playing out over the next several months:
- An agreement being reached by the end of June, which would allow Greece continued access to "emergency liquidity access" -- the funds that are keeping the nation afloat economically.
- Agreement on a new debt program, "but only after capital controls are imposed and/or a Greek government default."
- No new program, leading to government default and capital controls, but Greece remaining in the EU and continuing to use the euro as its currency.
- The so-called Grexit, with Greece leaving the eurozone and abandoning the euro as its currency.
The Grexit is, of course, the most worrying scenario. "A Greek exit would not just be bad for the Greek economy, it would be taking a very large and unnecessary risk with the global economy just when a lot of things are starting to go right," Jason Furman, chairman of the White House Council of Economic Advisers, told Reuters in an interview earlier this week.
"A fraught week lies ahead, primarily for Greece, but also perhaps for euro-area equity markets and bond markets in the euro-area periphery," economists at Daiwa Capital Markets wrote in a research note quoted by The Guardian.
So, analysts expect the markets to be quite jittery in coming days ahead, with many eyes glued to the Greek soap opera.