It is very clear that there has been a new wave of anti-austerity politicians in Greece. The left wing Syriza Party has made many promises to the Greek public in regards to ending austerity for the country. Whether they are able to keep these promises without damaging the Greek economy remains to be seen.
The new government has been in power for only a short period of time and it has already been very controversial. This is especially due to the fact, that it is not common to have an extreme leftist government as the head of a country in the EU. Nevertheless, during times of financial instability extreme parties have a greater facility for coming into prominence. For Greece these new anti-austerity measures bring with them a sense of hope. Citizens who feel they are not responsible for the actions of past governments want the weight of austerity taxes lifted off their shoulders.
However, Greece not wanting to comply with bailout terms has caused the EU to become aggravated. Greece has been allowed an extension and have until the 16th of February 2015 to apply for it. If they do so the Eurozone will continue to back Greece. So far it appears the Syriza government is unlikely to apply for this extension. If they do not do so they will fall into greater debt and in order to keep their economy afloat they will have to return to the original Greek currency: drachma.
In doing so they would, in effect, have to leave the Eurozone. Based on the current actions of the Syriza party this may become a reality. Neither the EU nor the Greeks want to be lenient in this situation. This is especially true as the Syriza party truly believes that Greece will fare much better without the austerity measures.
Citizens who feel they are not responsible for the actions of past governments want the weight of austerity taxes lifted off their shoulders.
However, the EU does not want Greece to escape the austerity measures and regulations. As a result there is a very imminent threat of Greece actually being forced to leave the Eurozone.
Although, there is a great chance of Greece leaving the EU, in the Guardian it was stated that economists of Citigroup believe ‘the ECB and creditors will come to an agreement with Greece.’ This is most likely due to the fact that Greece has already been given 240 billion euro in bailout funds. This is a substantial amount that could be lost. Some people are of the opinion that the money is already lost regardless of whether or not Greece remains in the Eurozone.
The threat of the ECB cutting off Greece is not incredibly effective, as it is stated in The New York Times, because they can still currently obtain ‘Emergency Liquidity Assistance’ from the National Central Bank. Based on this fact the Syriza government led by Alexis Tsipras will feel encouraged, as it appears to give them an upper hand.
However, Greece leaving the EU could create a chaotic situation. It would not benefit the Greek economy, as they would have to leave the euro. The single currency has been advantageous throughout Europe especially when it comes to travel, tourism and foreign investment. Leaving the euro would also mean that Greece would have to solve its financial difficulties on its own, without the support of the EU. It is important to note that it is the EU itself that is currently keeping the Greek economy afloat. It was stated by Mr. Stathakis in the Wall Street Journal that Greece needs ‘4-5 billion euros to tide it over by June.’
There is also the fact that it would also negatively affect the Eurozone. It is stated in the Economist that it would ‘injure the principle that being a member of a single currency is irrevocable.’
The fact that Greece may potentially leave the Eurozone will also have a negative effect on its international outlook. This is especially true in terms of the effect it will have on the rest of the member states of the EU. To Germany, and other member states that are financially better off, it would be incredibly discouraging to have a state leave the EU when so much funding was pumped into it. Greece leaving the EU might also either scare members that have considered leaving into staying or encourage them to leave depending on how the situation pans out.
It would be likely that the US would prefer it if Greece stayed within the EU. This is because they have also pumped money into Greece through the IMF. If Greece left the EU this would damage the US’ opinion of Greece and would make them less likely to invest in there.
The single currency has been advantageous throughout Europe especially when it comes to travel, tourism and foreign investment
The current suggestions that Greece is attempting to negotiate with the EU are completely contrary to what was agreed when they were given the bailout fund.
According to the Wall Street Journal it would be very difficult for Greece to overcome austerity. For them to do so they would need ‘a large reduction in interest payments’ in order to obtain ‘the financial flexibility’ that is required.
As a result of these factors Greece is being overly ambitious with their demands and the Syriza government has put it in a precarious position. Although austerity is seen as unfair and it was not the general population that caused the situation it is still a safer option to remain within the EU. Austerity is time-consuming and hard on the citizens, but Greece would be better protected within the EU. Also returning to their former currency wouldn’t be beneficial to them. The Euro is a strong currency and having a common single currency within the European Union has always been a good feature of being a member of the EU. Greece would be better off coming to an agreement that allows them to remain within the Eurozone.