By: Frehiwote Negash –
In light of the European Central Banks’s refusal to loan more money to Greek banks to stave off financial ruin, Greece’s newly elected Prime Minister Alexis Tsipras stated that Europe has “a noose tied to Greek necks”. Since 2010, Greece’s massive debt crises has snowballed and has put the European Union in a precarious financial situation as they struggle to decide whether the country is worth saving at the expense of all EU members. Greece narrowly avoided disaster last month at the 11th hour when Euro zone finance ministers decided to extend their loan by another 4 months in an effort to avoid the credit crunch and allow Greece the time to reorganize. With the European Central Banks’s announcement today, the Greek government is facing an uphill battle as the country is cash strapped and is quickly running out of time. The central issue here is that Greece has so much debt to banks in the Eurozone, particularly Germany that it has to keep refinancing that debt. Greece has repaid the first 310 million euro installment of a loan from the International Monetary Fund while it struggles to cover its domestic funding necessities. Greece must pay a total of 1.5 billion euros to the International Monetary Fund in March, with the subsequent payments due on March 13, 16 and 20.
Tsipras had asked the European Central Bank for a bridge loan to ride out the country’s immediate funding issues, while it renegotiates the terms of the country’s second bailout in 5 years. However, the rest of the Eurozone was against a new loan deal unless Greece pledges to continue austerity measures. This is a daunting task for the newly formed leftist government which got elected in January on a promise to fix Greece’s economic issues by ending austerity and to renegotiate Greece’s 240 billion-euro; a promise that is going to be a challenge for them to keep in light of the ECB’s refusal to loan more money to the country. Germany, Greece’s largest creditor has made it clear that in order for the country to continue receiving financial assistance, austerity measures must be a part of the Greek government’s plans. These measures include cuts in pensions and minimum wage and significant cuts in the private and public sector making it difficult for the Greek government to keep its promise if the country wants to avoid financial ruin. Austerity is a nonnegotiable condition for Greece’s creditors and it will be the focal point in the next round of Eurozone discussions. Greece has to demonstrate that it is sincere in its efforts to right its economic ship and come up with a viable plan that not only meets the demands of their creditors but is a plan that . Unfortunately for Tsipras, that means breaking a lot of election promises.
Sources: The Telegraph, Reuters, National Post