A Greek Tragedy

8 March 2017

After being relegated to the back burner by worries about Brexit and the election of Donald Trump, Greece is back in the limelight. The nation’s economy is not out of the woods yet and has shrunk by more than a quarter over the past decade. In fact, the Greek crisis has now morphed into a humanitarian catastrophe with pensioners suffering the ignominy of watching their income cut by half while medical services are also floundering, with some drugs no longer available. Adding to the negative sentiment, the nation’s unemployment rate is hovering at a staggering 23.0%. Till now, Greece had been assisted by the so-called troika — the International Monetary Fund (IMF), the European Central Bank (ECB) and the European Commission (EC). However, this help comes with strings attached. Lenders imposed harsh austerity terms, requiring deep budget cuts and steep tax increases. They followed the process of disbursing money in tranches, with the requirement to sign off on a review of bailout progress before releasing fresh funds.

Greek lenders in deadlock over bailout

However, the IMF and Greece’s European lenders have reached an impasse. The nation’s European lenders have put in a demand that Greece must maintain a budget surplus of 3.5% for a decade from 2018. On the other hand, the IMF has been arguing that Greece would fall short of this target, while further austerity pains could snuff the nascent Greek recovery from taking hold. Further, the IMF’s suggestion of overhauling of the Greek tax system and reforming pensions might also be a difficult proposition to sell to the Greek population, which is already reeling under a tough bailout regime.

Another point of dispute is that the IMF has called for Greece to be granted substantial debt relief by its European lenders. This has been notably opposed by Germany, which makes the largest contribution to the budget of the European Stability Mechanism (ESM), the Eurozone’s bailout fund. The uncertainty has renewed fears of a new financial crisis among investors. A fresh crisis over Greek debt is looming and if Greece does not receive a fresh injection of bailout cash in time, it stares at an elevated risk of defaulting on debt repayments worth about €7.0 billion.

The IMF’s participation in the Greek bailout programme remains in doubt

The IMF has made its participation in the third bailout programme conditional on “significant” debt relief. Under its own rules, the IMF is forbidden from putting money into a bailout if it thinks debt is unsustainable. The institution has warned that Greece’s debts are on an “explosive” path, despite years of attempted austerity and economic reforms. Further, the fund estimates that Greece’s debt will rise to a staggering 275.0% of GDP by 2060, which would undoubtedly put it into the “unsustainable” category.


As the deadlock between Greek lenders continues to drag on, the future for the Greek population looks much more arduous. Moreover, the approach of the Greek Prime Minister, Alexis Tsipras to the whole issue has been somewhat mystifying. Although his Government put on a fiery start to the debt issue, they have failed to resolve the crisis yet. Greeks are increasingly more dissatisfied with the prolonged austerity measures and the popularity of Tsipras is waning. Another important factor complicating the Greek issue is that time is running out to get matters sorted before the first in a series of European elections kicks off in the Netherlands this month.

With all these tough situations ahead, the light at the end of tunnel looks dim and distant for Greece. These are seemingly irreconcilable positions but unless they are reconciled, Greece faces another period of turmoil.