The latest round of talks between the new Greek government and the EU failed to bear fruit, as both sides refused to give in. If you’re just tuning in to this drama series, you should know that Greece no longer wants to accept further austerity measures while euro zone creditors insist that this isn’t an option. Here’s what went on so far:
1. New Greek government is playing hardball
True to his bad boy fashion sense, Greek finance minister Yanis Varoufakis also proved to be a rebel when it comes to the country’s debt negotiations with the European Union. In Monday’s episode of the debt negotiations, he caused quite a scene in expressing outrage over the EU’s proposal to roll back some of the harsh austerity measures later on only if Greece agrees to continue with its bailout by Friday.
According to Varoufakis, these promises were “nebulous”, accusing EU officials of backpedaling on a previous agreement. Apparently he was ready to sign a deal that involved a four-month transition program that would give Greece a chance to get back on its feet before establishing new repayment terms – one that took the country’s economic and humanitarian crisis into consideration. “Unfortunately, that splendid document that I was prepared to sign was withdrawn minutes before the Eurogroup [meeting] began,” said Varoufakis.
2. Germany refuses to budge, France willing to compromise
Euro zone’s largest and toughest economy clearly isn’t happy with how the debt talks are going. Germany’s Finance Minister Wolfgang Schäuble even said that he feels sorry for the citizens of Greece since they elected a government that is “currently acting irresponsibly.” He added that Greek Prime Minister Tsipras is “insulting those who have helped Greece in the past few years” and that he is skeptical that a deal will be achieved.
France, on the other hand, seems more inclined to meet halfway. French Finance Minister Michel Sapin suggested that the EU should also respect the Greek people’s vote, as the new government has been put in place to pursue a different debt policy.
3. EU Ultimatum: Reach a deal by Friday or scram
Under the current terms, Greece’s bailout is set to expire at the end of this month and a new agreement must be made in order for the country to be able to continue repaying its debt obligations. Even IMF head Christine Lagarde recommended that Greece should seek an extension of its current bailout program or risk defaulting on its debt.
With neither side willing to throw in the towel, the EU decided to give Varoufakis and his men an ultimatum: agree to continue the bailout program which includes austerity measures or forego the funding they need to avoid a default. However, Varoufakis still believes that the EU might take a lighter stance in the coming days. “In the history of the European Union, nothing good has ever come out of ultimatums,” Mr. Varoufakis said. “I have no doubt that in the next few days any notion of an ultimatum is going to be withdrawn.”
4. Debt relief from Russia or China?
Perhaps the reason why Greece is able to put up its tough guy act is that they have a feasible Plan B. The government has mentioned that it can approach Russia or China for debt relief, which means that they are still pretty confident that they can be able to get funding elsewhere.
Finance officials have warned that this scenario might drive Greece farther away from the euro zone, as this would indicate that the country no longer trusts the EU to maintain solidarity in the region. Defense Minister Panos Kammenos even suggested that they could turn to the United States for financial help, although this might be shooting for the stars.
5. “Grexit” already priced in?
So it’s gonna be forever or it’s gonna go down in flames? It seems that Greece’s membership in the euro zone hangs in the balance, as forex market watchers are waiting to see if this nail-biting debt drama will end in a “Grexit”.
If this happens, analysts say that the attention might shift to the next member nations that might find themselves in a similar situation later on. After all, euro zone countries like Cyprus and Portugal are also struggling with their debt burdens, putting the stability of the entire region and its currency at risk.
No wonder the euro is under heavy pressure at the moment! Do stay tuned for any updates on the Greek debt talks in the coming days, as this could determine the forex behavior of the shared currency. Do you think a deal will be reached on Friday?