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Europe’s Last Need: Another Greek Crisis


How is your déjà vu? Another debt crisis is brewing in Europe.

Greece needs European creditors to release cash Bailout agreed in 2015 So it can pay off debt, but the authorities are at Loggerhead. Investors are demanding higher returns on Greek debt and are beginning to worry.

In addition to the turmoil, there are warnings from the International Monetary Fund that Greece’s debt is unsustainable and is on an “explosive” path. This is an assessment that prevents the fund from participating in the bailout.

The timing is rarely bad. European leaders have a lot on their plates. Elections are imminent in the Netherlands, France and Germany. Brexit negotiations will begin within a few weeks.

But beware of the threat of Greece falling from the euro. Here’s why the next few weeks are important:

Hammer to fall

Greece is short of cash but needs to repay creditors, including the European Central Bank. The major bill is due in July.

If Greece is unable to make payments, it will default and spiral out of the euro area.

Meanwhile, the latest bailout (third since 2010) has been virtually frozen. Since the bailout agreement was agreed in June 2015, the negotiating position of key players has been farther away than at any point.

There is also disagreement about the magnitude of the problems facing Greece.

“The latest review by the IMF on Greece’s debt positions was surprisingly pessimistic,” said Jeroen Dijsselbloom, the Dutch Finance Minister, who chairs the meeting of Chief Financial Officers in the Eurozone. “It’s amazing because Greece is already doing better than the report explains.”

I want them all

Creditors led by the IMF, Greece and Germany all have very different priorities. What each wants is:

The IMF called on Greece to bring about more ambitious changes in the economy, including labor market reforms. The IMF did not consider Greece’s debt sustainable and did not participate in the third bailout when it was first agreed in 2015. Still, Greece claims that it cannot stand on its own without major debt relief.

Key Greek creditors agree that Athens should implement the reforms proposed by the IMF. However, they categorically ruled out debt relief, a recurring position by eurozone financial authorities on Tuesday.

Meanwhile, Greek Prime Minister Alexis Tsipras has shown no sign of succumbing to demands for further reforms. He argues that debt relief is needed before new concessions are made.

This is a classic standoff, where investors are watching which party flashes first.

Extinguish the fire

The next major milestone is the Eurogroup Finance Ministers’ Meeting in February. 20-The last election before the election begins to cloud the political waters of Europe. As voters begin to cast ballots, it becomes even more difficult to agree to more financial assistance to Greece.

Then the invoice due date begins. Greece faces payments to the ECB of around € 1.4 billion in late April and an additional € 4.1 billion in July.

The stakes are high.

Greece’s unemployment rate is expected to exceed 21% in 2017. Since the financial crisis, investment has fallen by more than 60% and output has shrunk by more than 25%. The social structure of the country is frayed.

According to the IMF, if European creditors refuse further support, Greek debt will be out of control no matter how fast its economy grows.

It will leave only one option-to abandon the euro.

Ted Maroc, the expected choice of President Trump’s US ambassador to the EU, told Greek television on Tuesday that the future of the euro area will be determined in the next 18 months.

“Sure, Europe will exist whether or not the euro area will survive. I think it’s a very agenda issue,” he said. “This time, I have to say that Greece itself is likely to get out of the euro.”

CNNMoney (London) February 8, 2017 First Edition: 12:27 PM ET



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