"GREXIT": AVOIDED FOR NOW!

In this article, published in the August 2015 issue of THE GLOBAL ANALYST (magazine), the author provides a detailed analysis of the unfolding of the Greek crisis since it sparked off the Eurozone crisis in 2010 when it revised its early deficit prediction from 3.7 per cent and estimated to be 13.6 per cent. This article aims to explore, through granular economic data, how the high debt-stricken country has failed to assure a clear path to real long-term economic growth and sovereign debt sustainability, despite the implementation of tough austerity measures (i.e. internal adjustments’ program) over a period of five years (“The Great Recession” in the Euro zone) and major sacrifices for the Greek people. The article also has been written in one of the most acute phases of the Greek crisis (mid-July 2015), just a few days after the date when the country failed to make its €1.6 billion payment to the IMF, thus becoming the first developed country to go into arrears with the International Monetary Fund. Those were the days when Prime Minister Alex Tsipras unexpectedly called a referendum on the country’s latest bailout offer that international creditors have proposed to keep the debt-stricken country afloat, and when a new potential bailout program (a third bailout of would cost €82 billion-€86billion) was discussed by its major creditors (European Commission, the European Central Bank and the International Monetary Fund) to avoid the country’s potential exit from the Eurozone and default on the ECB payment due on July 20th, 2015. Given the level of uncertainty on the potential future outcome of the new bailout decision at the time of writing, the author has explored in this article the pros and cons of a potential “Grexit” scenario (i.e. an exit of Greece from the Eurozone). The article aims to contribute to the debate about the changes needed to the Eurozone rules and treaties in order to avoid in the future other similar crises through a closer political and fiscal integration, and a strengthened financial, capital markets, and banking union, adequate solidarity mechanisms, permanent or at least temporary fiscal transfers, co-funded public mechanisms to support job flexibility in countries with high unemployment, and timely and effective “burden sharing” (fiscal backstop) crisis resolution mechanisms . and economic sustainability. Conclusion The new dramatic Greek crisis of 2015 and the political tensions that followed between the country’s government and its creditors concerning a potential “Grexit” scenario, the decision to grant a potential third bailout in five years, and the feasibility of potential debt relief to assure the country’s debt sustainability, have certainly contributed to increase uncertainty and volatility in the markets, while the Eurozone is still facing a phase of fragile economic recovery. Nevertheless, in spite of the painful tensions between the Greek government and the creditors and the dramatic resurgence of the Greek crisis, probably one positive outcome of this new crisis could be related to the sense of urgency experienced by a number of Eurozone leaders in the search of sustainable long-term solutions to such crises. Thus, this new dramatic event might represent a painful but necessary step towards a more integrated and unified Eurozone. The lesson learned from this new Greek crisis could lead to a new framework of the European rules and governance that might strengthen its resilience in the future to potential systemic shocks (economic, financial, banking, political or social crises). Yet, the ability and speed of the European political leaders and authorities to envision and implement, with the consensus of their citizens, new and effective institutional frameworks and rules to avoid in the future other potential member states' exit scenarios, will determine whether this new crisis has been useful to strengthen the Eurozone and its geopolitical, economic, social scope, otherwise, the currency area will remain incomplete, fragile, and fragmented and new potential crises might just be around the corner.