Irresponsible and amateurish- that is how one would describe the handling of the debt crisis by Greek Prime Minister Alexis Tsipras. It is no point blaming the creditors. There is clearly a limit to their patience. The onus to repay, even after the terms of the repayment have been vastly stretched to accommodate Greece, is still on the debtor nation. It can no longer evade commitment to the lenders nor can it blackmail the creditors indefinitely by threatening to renege on the repayments and by disrupting the European Union project. Recklessness by borrowers almost always imposes costs on them. And Greece is paying for its extravagant follies. The Tsipras Government might have won on the single no-austerity platform, defeating the old and established parties. But soon it dawned on it that populism cannot help meet guarantees on repayment of debt to the IMF, the European Central Bank, besides a host of European Union member-countries.
In fact, the crisis came to a head because Greece seemed in no position to pay $1.8 billion to the IMF by midnight on July1. A further commitment to redeem bonds held by the ECB worth over $ 4 billion on July 20 looms large. Because it was certain to fail, the creditors offered stringent prescriptions for Greece to get its act together. It involved a further tightening of the belt, so to speak, more austerity, more cuts in pensions and State expenditures, etc. But Tsipras feared popular backlash, having won on the slogan of no-more-austerity. Thus, trapped, he has shifted responsibility of decision-making to the eleven million voters who on Sunday, July 5, will decide whether or not to agree to the terms attached to a further bail-out. Meanwhile, banks were ordered closed for a week and stringent curbs clamped on ATM withdrawals.
A referendum is unlikely to yield any other outcome than a rejection of the conditions attached to further bailouts. Voters are being exhorted by Tsipras to reject the creditor’s proposals on Sunday. In fact, Tsipras is threatening to resign in case the referendum throws up a `yes’ vote, something creditors feel is the best way out of the immediate crisis facing them as well as Greece. There is ambivalence both in Greece and EU over the likely exit of the former from the monetary union. Neither wants that to happen because it can impact other EU members whose economies are only a shade better than Greece’s. Spain, Portugal and even Italy are not in a very sound position right now. However, the creditors are now better prepared than only a few months ago, to the possible Grexit, hence, the rather tough stance of Germany and the ECB on not offering another life-line to Greece. Reportedly, fresh terms have been offered to Greece as the July 1 deadline approaches for the IMF repayment. This might be aimed at projecting to the Greek voters that the creditors, after all, are not being harsh. However, should the worst happen and the Greek voter decide to opt out of the Euro zone, it is highly unlikely that the EU project would collapse. There are far more pluses than minuses from a monetary union of 19 members of the European Union. Britain is an EU member but not part of the currency union.
Well, if the EU is prepared to meet any eventuality, so is the rest of the world. Greece contributes a mere two percent to the Euro zone’s total GDP. Barring a serious and prolonged bout of instability in the EU, India has little to fear since its exposure to the Greek economy is negligible. Yes, in the immediate course, a few tremors could be felt across the financial markets, as was the case on Monday when the Sensex slipped badly on reports of a Greek default. The Indian authorities have also ruled out a major impact on the domestic economy. The situation is still fluid and a last-minute deal to reschedule the repayment commitments cannot be completely ruled out. It is so because both the borrowers and the lenders cannot comprehend the future after Grexit. And the EU dreads the prospect of the Greece contagion catching other members of the Euro Zone. Next few days are bound to be tense for the global economic community as also for the ordinary Greeks.
