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How the Euro Summit reach a bailout agreement with Greece?

Editor: Li Kun 丨CCTV.com

07-24-2015 17:43 BJT

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

Good news came out of the euro zone summit on July 20 that Greece had received a new bailout in exchange for introducing reforms, its third bailout in five years. Greece temporarily relieved its debt crisis and the euro zone was also relieved from the risk of a Grexit. The agreement was finally reached after both sides demonstrated sincere efforts.

The Greek government backed down from its radical route for the moment, and totally accepted their creditors’ reform proposals. Greece Prime Minister Alexis Tsipras’ stance and actions showed  clearly that he had abandoned his campaign commitments.

On January 25, the newly elected Greek Prime Minister  claimed he would “end the current deflationary policy and maintain the euro zone’s status.” He proposed anti-deflationary measures, such as re-employing staff in the state-owned sector. Following the expiration of the last bailout in June, the government negotiated with euro zone leaders and made concessions to each new proposal. Before the Greek parliament vote on June 15, Tsipras even publicly pleaded for an affirmative vote for Greek stability and European unity.

The Greek government also reshuffled radical elements out of the cabinet. In the governmental reorganization on July 17, nine ministers who held opposing opinions were replaced, reflecting Tsipras’ determination to unify the cabinet and smoothly execute reforms.

There are two reasons why the Greek government was willing to cooperate:

Firstly, the Greek economy could not survive without rescue. The latest data shows that Greece’s economic situation is dire. Economic growth shrunk 0.4 percent in the fourth quarter of 2014 and 0.2 percent in the first quarter of 2015.

Banking capital controls started June 28 as the economy accrued 1 billion euros in losses according to the Greece Commercial Federation Association. The Greek economy desperately needed help.

Secondly, the European Union (EU) could withstand the economic risks associated with a Grexit and adopted an intransigent attitude throughout. With improving coordination in the European banking industry, the financial crisis caused by a Grexit could be controlled. Spanish Prime Minister Mariano Rajoy said Spain could cope with a Grexit. And the EU also had experience in confronting referendum threats. In 2011, then Greek Prime Minister George Papandreou tried to force the EU’s hand with a referendum, but later had to resign under pressure.

After witnessing Greece’s sincere determination to reform, the EU made substantial efforts to help. The German and French parliaments approved their governments to continue negotiating with Greece. Even Great Britain agreed that the EU could bridge Greek debt through the European Stability Mechanism bailout fund.

The EU provided the Greece government with 7.16 billion euros of bridging funds, and the European Central Bank also raised 900 million euros in emergency liquidity assistance for Greek banks. Hence Greece was able to pay back 2 billion euros to the International Monetary Fund (IMF) on June 30 and 4.2 billion in euro bonds to the European Central Bank on July 20.

But Greece’s political and economic situation remains difficult. Although the Greek government has been reshuffled, according to the London Financial Times there is still a possible new general election in September or October. The radical left Syrzia and Alexis Tsipras still might win it, but the open rift between Tsipras’ leftist government and the central committee of the radical left Syrzia party is clear for the public to see and so may hamper stability and reform. 

The Greek economy has poor competitiveness and resilience and must still address unsustainable debt and a low growth rate. It is unrealistic to expect Greece to improve overnight. The IMF predicts Greece’s economic growth rate as zero in 2015, with the government debt ratio rising from 177 to 200 percent. These are challenges that Greece and the EU  have to confront in the future.


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



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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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