UCL European Institute


Why we don't need to panic about Greece

07 May 2015, 12:00 am

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Media coverage of the talks between Greece and its Eurozone partners sounds increasingly alarming, but is there good reason to panic about Greece? 
Filipa Figueira
7 May 2015

The past few months have seen a series of make-or-break meetings between Greece and the other Eurozone countries - culminating on 24 April with a tempestuous Eurogroup meeting in Latvia. There, finance ministers allegedly accused Greek Finance Minister Yannis Varoufakis of being 'a gambler, a time-waster and an amateur', and blocked their ears while he was speaking to show their despair. This led Prime Minister Alexis Tsipras to reshuffle the negotiating team - Mr Varoufakis has not been fired, but was sidelined, as Deputy Foreign Minister Euclid Tsakalotos will now be heading the negotiations with the Eurogroup.

So are we approaching 'Grexit'? Most probably not.

It is clearly in the interest of both sides to reach an agreement. For all Eurozone countries, a sudden Greek default and exit of the euro would create a dangerous level of economic uncertainty and could potentially lead to financial chaos. As for Greece, it is determined to stay in the euro, above all for political reasons: Greeks are very pro-European and see being part of the euro as a source of national pride. Moreover, a sudden exit would cause even more damage to the Greek economy, and no amount of potential Russian support would realistically compensate for that.

So consensus is most likely to be found…but it may take time, because there is a lot of posturing involved. The Eurozone governments need to appear to be standing firm and being tough on Greece, to safeguard the credibility of the euro. Meanwhile, Greece's ruling Syriza party needs to appear to be defending its mandate, by reducing austerity measures and not being afraid to stand up for Greek interests in Brussels.

There are also, admittedly, some differences of opinion. Greece wants a more flexible approach to structural reforms, while its Eurozone partners want to stick as closely as possible to the original, troika-designed, austerity programme. But there is a lot of wriggle room in between the two extremes of having a very rigid plan and having no plan at all - there are many options in between. This is no unbridgeable gap.

A final reason for the ongoing tensions is the apparent personality clash between Mr Varoufakis and the other Eurozone Finance Ministers, who were irked by his unwillingness to follow the usual procedures. In particular, at this stage Greece was expected to have provided the Eurogroup with a full and detailed programme of reforms, but that is yet to happen.

That aspect of the problem will hopefully have been solved by replacing Mr Varoufakis with a more consensual politician. Posturing and tensions will not suddenly disappear, but, when both parties share the same goal, consensus is most likely to be found along the way, and Greece to stay in the euro. Whether the euro currency itself can survive in the long-term, despite its serious design flaws… is another story.

  • Dr Filipa Figueirais a Teaching Fellow in Economics at the UCL School of Slavonic & East European Studies