Experts warn about dire consequences of a Grexit

Just hours before its international bailout expired, Greece yesterday requested a two-year rescue deal with the European Union to save the country. The proposal was for “an agreement with the European Stability Mechanism to fully cover its financing needs and the simultaneous restructuring of debt”.

With the situation evolving by the minute, EU authorities made a last-minute offer to salvage a bailout deal that would keep Greece in the euro area. The European Commission urged Greece to accept the proposed deal, while holding out hopes that some tweaks could still be possible.

With Greece heading towards a bailout referendum, Greek Prime Minister Alexis Tsipras has made his pitch for a ‘no’ vote; EU Commission President Jean Claude Juncker has urged the Greeks to vote ‘yes’.

“There’s no Europe without Greece,” he emphatically said, after claiming he felt “betrayed” by the referendum call.

The eleventh-hour Greek proposal was “symptomatic” of the Greeks, Finance Minister Edward Scicluna told MaltaToday, adding it would be “foolish” of the Greeks to turn down the proposals of the IMF, the ECB and the European Commission.

What is ahead of Greece? And what are the consequences of a Grexit? 

Our panellists – Edward Scicluna, Philip von Brockdorff, Roderick Pace and Gordon Cordina – have their say.

Edward Scicluna - Finance Minister

Maltese finance minister Edward Scicluna and Greek finance minister Yanis Varoufakis

The new Greek government’s mandate to ease the austerity in Greece could have been delivered successfully were it not for a number of strategic mistakes.

The emphasis of not talking to the institutions in Athens lost the government four precious months. That time should have been used productively into presenting a home-grown package of much needed reforms, as an alternative to the old MOU. 

This unprecedented flexibility had been approved by the Eurogroup way back on February 20.

The Greek policy makers could have avoided any measures which they did not like and substituted them with others.

The current package (aide-memoire) was presented instead by the creditors’ institutions as a last resort only when it transpired that the Greeks’ own package was failing to materialise.

Given that what is on the table bears a similarity to the old MOU, the choice is now between strong and painful medicine and certain death, in an economic sense. 

Greece is completely out of oxygen which only the EU institutions together with the IMF can supply. 

It would be foolish to turn it down.

The letter sent about nine hours before the IMF payment deadline (midnight) by the Greek government to the Eurogroup and ESM/EFSF presidents asking for a two year loan and reprofiling of the debt, so as not to “trigger a technical default”, is symptomatic of the Greek authorities’ behaviour in this saga.

Although it is a legitimate request in the context of an amicable settlement of a bailout package, it has to be evaluated in the context of a refusal to abide by the suggested conditions set by the creditor countries. The funds and guarantees within the EFSF/ESM have been paid in by the creditor countries.

Philip von Brockdorff - Head of economics department at UoM

Philip von Brockdorff

Barring any last minute deal, which cannot be excluded even at this late stage, the referendum on Sunday will determine via a democratic vote whether the present government retains the legitimacy to reject the bailout terms or call early elections. 

Either way the economic uncertainty facing the Greek economy will not go away. The huge debt burden as well as the difficulties to press ahead with structural reform will further extend the period of recession. 

If opting out of the euro would finally result in some respite for the beleaguered Greeks, then that may be the way forward. However, the economic prospects of exiting the eurozone are just as bleak if not worse than remaining inside. 

Gordon Cordina - Economist

Gordon Cordina

Grexit is a bit like a game of chicken between Greece and its creditors. Should their cars collide at frontal high speed, both will suffer, and by more than each one would, should any one of them decide to give in. 

To my mind, there remains space for a reasonable solution which would not throw Greece into an economic abyss, and the eurozone and the EU into an ever more difficult political situation with an ally which may potentially turn volatile. 

It is now time to move from posturing to effective action, possibly through a solution which does for Greece what the Marshall Plan did for Europe. 

Roderick Pace - Director at the Institute for European Studies

Prof. Roderick Pace

A Grexit will end aimless rounds of negotiations which have cost the EU dearly by diverting its attention away from more burning issues, such as migration and the security threats in its neighbourhood. 

Grexit will hurt Greece most. Its heavily listing economy will capsize. Instead of securing reprieve from their present hardships, the Greeks will be worse off. EU member states will lose what they have lent Greece and will become more wary of extending a helping hand when similar situations arise. 

Solidarity would receive a mortal blow. 

EMU will suffer from Grexit, but would weather the storm. Greece has stubbornly rejected reform, mistakenly thinking that Europe’s patience is infinite and that the rest of the world owes it a living. Compare it with Iceland’s and Ireland’s recovery. 

The EU will survive a Grexit, but not before experiencing a rocky and bumpy ride.