Posted February 17, 2015 Gerhard Hartwig
Negotiations between Greece and the Euro zone have been dominating the news headlines for last few weeks and with good reason. Yanis Varoufakis, the new Greek finance minister, has been trying to exit the current bailout programme provided to the previous Greek government by the ECB. The new Greek government, led by the far leftist Syriza party, came to power on the back of promises to end the austerity measures as required by the ECB bailout programme.
The reason the talks are currently heating up is the fact that the current bailout programme expires at the end of February. Without a new bailout programme in place, Greece risks losing out on the desperate credit it requires to keep the country afloat. This could further escalate into Greece leaving the Euro Zone and having to give up using the Euro as a currency.
Although the ECB has reason to stop any compromise on the new bailout programme, a point strongly favoured by the Germans since they are the biggest provider in the €240 billion bailout package, it does come with risk for the Euro Zone. Letting Greece fail and exit the Euro Zone would potentially create more uncertainty for the Euro Zone and the Euro currency as a whole. This is the last thing the struggling Euro Zone needs as it battles deflation and low growth.
Whichever way the negotiations go, the outcome will definitely bring change with it. If the ECB decides to compromise and accompany the demands of Greece, it could open the way for similar far leftist parties to come to power in other Euro Zone countries creating more divergence between Euro Zone members. Greece leaving the Euro Zone would not only add uncertainty about the Euro Zone as a whole, but the Euro Zone could lose out politically and strategically on a more global scale if Greece was to turn to Russia or China for assistance.