An emergency session of eurozone finance ministers was held on February 11 to narrow down their differences with the leftist-led Greek government, which is pushing for relief from tough austerity measures. However, the seven-hour meeting in Brussels didn't make any progress.
The Greek government has been granted 240 billion euros in aid from the "Troika"- the European Commission, European Central Bank and International Monetary Fund - since 2010 in exchange for the implementation of austerity measures.
However, Greeks voted for an end to austerity in January. The radical left Syriza Party won an historic victory in Greek national elections by promising to reverse five years of "humiliating and suffering" austerity, and "Greece won't take orders any more, especially orders through e-mails." Prime Minister Alexis Tsipras is seeking a new debt agreement with the eurozone.
On the other side stand Germany and other EU member-states insisting Athens should stick to the existing rules. German Chancellor Angela Merkel earlier ruled out cancelling any of Greece's debts, because banks and creditors have already slashed billions from Greece's debt in a renegotiation in 2012.
"If Greece doesn't reach an agreement with the EU by the end of this month, the European Central Bank will be obliged under its laws and rules, to stop supplying money to the banking system," Graham Bishop, a leading independent financial analyst who has advised the UK and European parliaments, told the Global Times.
If that happens, the depositors will run away very quickly, which would lead to the collapse of the banks. "Once it starts, it would be very difficult to stop," Bishop added.
Plan B
Greek Defense Minister Panos Kammenos said last week that if Greece fails to get a new debt agreement with the eurozone, it could go to Plan B, getting funding from the US, Russia or China.
- Chinese Premier Li Keqiang Thursday urged Greece's Prime Minister Alexis Tsipras to protect Chinese investments and backing for a key port project, the Chinese foreign ministry said.
- Greece's Foreign Minister Nikolaos Kotzias visited Moscow on Wednesday to hold talks with his Russian counterpart Sergei Lavrov.
- "Plan B is mainly a bargaining chip," Wu Yikang, the director of European Studies Center at the Shanghai Academy of Social Sciences, told the Global Times. It's not to seriously request for assistance from the US, Russia and China, but to put pressure on Germany, France and other EU member states.
Although Greece plays an important role in China's "One Belt and One Road" strategy, China will consult with Germany, France and other EU countries before providing any financial assistance, said Wu.
Greek Deputy Foreign Minister Nikolaos Chountis emphasized last week that their primary plan is to "find a solution with our European partners because we are aware of the commitments and obligations that our presence is Europe and the eurozone entails."
Since 2008, Greek has been through a political revolution with economic implications. The EU, particularly Germany, wants to see an end to Greece's corrupt political system, and requires Greece to honor its commitment of making deep budget cuts and economic reforms.
Bishop said the EU hopes Greece becomes a social market economy, removing corrupt incompetent officials and their corrupt ways of doing business. The social market economy would echo Germany's post-war revival.
Hasty compromise"It's absolutely possible to make a compromise," Bishop told the Global Times, adding that the EU has mechanisms to modulate through.
Merkel said there is room for compromise at the Brussels summit on Thursday. "Europe always aims to find a compromise and this is the cornerstone of Europe's success."
"However, it must also be said that Europe's credibility naturally depends on us respecting rules and being reliable with each other," Merkel emphasized.
Wu Yikang also believes that Greece is unlikely to withdraw from the EU. On the one hand, the size of Greece's debt is as high as 240 billion euros. It is impossible to pay this off on its own, and it is very difficult to obtain such a massive financial assistance from other countries.
On the other hand, the EU will not allow Greece to exit easily. Because the "Grexit"- Greece's potential exit-would open a gap within the EU. The spillover effects generated over the eurozone and the EU as a whole will trigger financial market upheaval.
If the Grexit happens, it would be "an accident," Bishop said. "But it's a possibility. Once it starts, it spreads dramatically. Once TV images show people queuing up at banks trying to get their money out, within a couple of days, you've got huge problems," he added.
This would create a domino effect that could cripple European markets.
It seems unlikely that Greece's new government would declare bankruptcy, nor will Greece leave the eurozone. It need not happen because the two extreme scenarios would be a disaster for both Greece and Europe.
Greece's new government needs to strike a balance between the wishes of its voters, and its commitment of meeting requirements set by the EU.
By Sun Wei in London Source:Global Times
15/2/15
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