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Is it time for Greece to exit EU?

Editor: Li Kun 丨CCTV.com

07-09-2015 17:00 BJT

By Dong Yifan, assistant researcher of Europe research institute, China Institute of Contemporary International Relations

Greek citizens have rejected the international creditors' debt deal offer with 61.3% of voters saying 'No' on July 5. Rumor has it that the “No” vote meant that Greece will exit from the euro zone. German finance Minister Wolfgang Schaeuble pictured that prospect as well.

Actually, Greece and the European Union don’t want to “exit”. They plan to start a new round of negotiations that will center on reform conditions, but some technical factors may force Greece to use the Drachma currency once again.

From the perspective of Greece, citizens, governments and major political forces all object to “exiting the euro zone.” The latest poll shows that 75% of Greek people support the status of the euro zone. Once Greece “exits”, under the circumstances of poor government credit and without gold or foreign exchange reserve, its new currency would be bound to devalue sharply, and people’s real purchasing power could be estimated to shrink 60-70%.

Greece's ruling party, Radical Left SYRIZA, has committed to staying in the EU before winning elections. If they manipulate the “exit” right now, the direct consequences would mean that government will be forced to step down. Thus, the Greek government cannot choose an “exit” strategy.

Among major parties of Greece, only the radical Golden Dawn party, Greek Communist Party and several radicals from Radical Left SYRIZA support the “exit”, however their influence in Parliament is limited, so the “exit” bill will meet many objections.

Judging from the latest situation, Greek Prime Minister Alexis Tsipras has called for a meeting of major parties to reach a consensus on the negotiations stance with three Institutions. Tsipras has temporarily gotten political support to stay in the EU.

From the perspective of the EU, it is not favorable to force a Greece exit. According to the law, there is no exit mechanism. Member states can request to resume its national currency, and need to appeal to the European Court of Justice.

Greece's “exit” would bring a major blow to other member countries. First, Greece may repudiate its debt from the IMF (International Monetary Fund) and European Central Bank (ECB). Other countries who guaranteed Greece’s debt must pay that instead. If so, Germany and France will lose more than 80 billion and 60 billion Euro respectively, which is higher than allowing for a continued bailout. Meanwhile, Greece’s “exit” will damage Euro’s reputation and its international standing. The potential cost is insurmountable.

The biggest challenge for Greece to stay in the euro zone is if Greece can pay its 3.5 billion euros public debts held by the European Central Bank. If Greece defaults, ECB will technically stop the Emergency Liquidity Assistance, which means Greek banks dependent on the capital control have no cash resources and cannot provide liquidity.

Greece has to make a choice between a Drachma recovery while dealing with financial paralysis, which would further result in the collapse of its real economy.
Both Greece and EU must restart negotiations to solve problems.

Greek Prime Minister Alexis Tsipras said the “referendum meant to bring confidence in future negotiations”, and changed its finance minister to show reconciliation.

The heads of Germany, France and the finance ministers of the euro zone countries all expressed their respect for the outcome of the referendum, but still hope Greece will offer a more responsible reform proposal in future negotiations.

European Council President Donald Tusk plans to hold the Special Europe Union Summit to discuss this problem on July 12, claiming the discussion of humanitarian aid to Greece will show goodwill. But Greece faces up to the livelihood and economic difficulties, and the EU has its important principles, both parties have little concession space, making negotiations even more difficult.

 

( The opinions expressed here do not necessarily reflect the opinions of Panview or CCTV.com. )

 

 

Panview offers a new window of understanding the world as well as China through the views, opinions, and analysis of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

Panview offers an alternative angle on China and the rest of the world through the analyses and opinions of experts. We also welcome outside submissions, so feel free to send in your own editorials to "globalopinion@vip.cntv.cn" for consideration.

 

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