Bailout backlash: Grexit still not off the table

Bailout backlash: Grexit still not off the table

As the Greek parliament votes to pass its latest bailout deal, does it risk further political backlash from the public, keeping a Grexit on the table?

On July 13th,  after seventeen hours of negotiations in Brussels, Greece and its creditors agreed to push through a number of economic reforms in order to secure an 86 billion EUR bailout and stay in the Eurozone. These include:

  • Sequestration of 50 billion EUR worth of assets and their transfer into an Athens based fund.
  • Economic supervision by bailout monitors, including the IMF, and a public administration overhaul supervised by the European Commission.
  • Liberalization of the labor market, opening up of closed professions, deregulation of Sunday trading and reinforcement of the financial sector

As expected, the continued austerity that the deal stipulates has caused an uproar within the governing Syriza party, and Labor Minister, Panos Skourletis, recently stated that the Government’s parliamentary majority was in danger. ‘’Right now there is an issue of a government majority. I cannot easily blame anyone who cannot say yes to this deal’’.

Iskra, a website that reflects the views of Syriza hardliners, published an editorial saying that the deal, once again, places Greece under the tutelage of its creditors and that the Greek people should resist it.

Consequently, the deal signed on Monday was not the end of the Greek saga. Investors should expect turbulent times ahead in the form of a Government reshuffling, a national unity Government, or early elections in two to three months time.

These are scenarios that Syriza MP’s and Government officials have already publically mentioned. While the terms of the current bailout deal will likely pass with the help of opposition parties, there will be significant fallout within Syriza and the Greek electorate at large. Support for remaining within the Eurozone at all costs will have diminished significantly and the current deal could garner futher support for a Grexit down the line .

In the July 5th referendum, Greeks voted ‘’No’’ to more Austerity measures by 61 percent,  a large and unexpected majority that marked the population’s willingness to leave the Eurozone unless a better deal was negotiated with Eurozone members.

However, to the surprise of many Greeks, Prime Minister, Alexis Tsipras, backtracked from campaign  promises and gave in to creditor demands by July 9th. Why this sudden shift and what then was the point of the referendum?

One major reason, which former Finance Minister Yanis Varoufakis recently revealed, was Syriza’s unwillingness and lack of technical preparation for a Grexit. It has been clear since the beginning of negotiations that Syriza overestimated the Troika’s fear of a Grexit and did not want to carry the responsibility for Greece’s exit from the Eurozone—the latter not part of their electoral mandate.

By accepting the latest bailout package, no one can hold the current Greek administration responsible for not doing everything they could to keep Greece within the Eurozone. Furthermore, any continued concessions proposed by creditors will only reinforce the Greek public’s view that there is no place for Greece in the Eurozone.

Overall, Monday’s deal between Greece and its lenders achieved two things: It gives Greece time to prepare for an eventual Grexit down the road, and effectively shifts the blame to its creditors for such an event.

Categories: Economics, Europe

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