Over the weekend, there have been a number of comments and events in Greece, which first increased the risk of a harsh clash between the Greece and the Troika. The risk of a Greek exit from the euro seemed to increase, but comments given later indicated a more positive way forward. In this Q&A, we analyse the comments and events and consider where Greece will go from here together with the expected market implications.
What happened over the weekend?
On Friday, the new Greek finance minister Yanis Varoufakis met with Jeroen Dijselbloem, who heads the euro area finance minister group. At a press conference after the meeting, Varoufakis indicated that Greece will not cooperate with the troika of international lenders and that it will not accept an extension of its EU bailout, which expired on 28 February. Without an extension of the bailout Greek banks could be shut off from ECB funding.
The comments from Varoufakis clearly annoyed Dijselbloem, who warned Greece against taking independent steps or ignoring arrangements with lenders.
On Saturday, both Angela Merkel and the ECB’s Liikanen expressed a harsh stance against Greece. Merkel ruled out the possibility of debt forgiveness and argued that Greece should stick to the terms of its bailout arrangement. Liikanen said that Greek banks would be cut off from ECB lending if no deal on the bailout was reached by the end of February.
On Saturday, it was announced that the new Greek government had hired US investment bank Lazard to advise it on managing debt. Lazard also advised Greece on its bailout in 2012 and the move could be seen as a sign that Syriza will stick to its election pledge to restructure debt.
Late Saturday, Greek prime minister Alexis Tsipras issued a statement, which to some extent should calm markets down. Tsipras expressed confidence in reaching an agreement, which could benefit both Greece and Europe as a whole. On Friday, he had also called ECB president Mario Draghi and told him that the new Greek government aimed at reaching a solution with international partners over Greece’s bailout.
On Sunday EU Commission President Juncker talked about a compromise for Greece and Europe and seemed determined to keep Greece in the euro. From Juncker’s surrounding the message is that there will be no Grexit with him in charge. Instead he suggested the Troika would be reformed and start focusing on general goals of economic policy with greater involvement of the member countries. This should be possible but only if the new Greek government confesses principle to the so far agreed austerity and reform. Related to that Deputy Prime minister Dragasakis said he would not be surprised if there is a political agreement after Tsipras-Juncker meeting Wednesday. This should make extension of the current bailout unnecessary.
Finally, Sunday night US President Obama entered the debate saying that it is impossible to keep on squeezing countries in the midst of depression and that an economy in a freefall needs to have a growth strategy.
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