Sunday, July 12, 2015

Reluctance to Lend More to Greece

It is a fact that when Syriza government took over in January of this year, Greek Economy was relatively on the path of improvement. Greece had primary surplus and lenders had not been fully burnt with it. The achievement of Tsipras and Syriza after coming to the power is fully destroying Greek Economy and dramatically increasing the amount needed in the third bailout - probably increasing by $50 Billion or so. And zero concessions or debt relief in the process from Troika. 

No wonder, no one trusts Tsipras, Syriza and Greece anymore. There is a case to be made that even after European Tax Payers have ponied the bailout money for the third time, Greece would not improve as it is endemic to the Greece Culture and Politics to keep blaming outsiders for their weak economy while refusing to take their own full responsibility and yet again and again go to Europe with a hat in its hand.

The dynamic here is, there are countries in Europe like Portugal which have successfully reformed on harsher terms than Greek and countries like Finland and Slovakia which do not have welfare programs as generous as like Greece. So what is important for the Europe - to continue to consolidate the Euro project with these countries while letting go Greece or to expose the Euro for further fissures down the line. Seems like Chancellor Merkel's assessment is rather than spending more money on Greece, it might be worthwhile to take the hit but apply the resources to further consolidation of Euro with remaining members.

As I argued earlier, the danger is after getting evicted from Euro, Greece will fall in the lap of Russia. But there are limits there as well - to start with it is not that Russia has lot of change to spare for Greece given subdued Oil Prices which will continue to be so once Iranian Oil floods global market after the expected deal with West. Secondly the same internal divisive forces in Greece which squandered European help twice, would also waste Russian Monies as well. In other words, it is difficult to imagine that the melodramatic political culture of Greece would use any external aid wisely.

Outcome is Europe demanding 'all legislative changes' upfront from Greek Lawmakers before loosening up any purse and Europe will continue to lend money in piecemeal fashion, depending upon how Greece fulfills her mighty reform promises.

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