23rd Oct 2020

Grexit fears hang over Eurogroup meeting

  • Failure to find an agreement between Greece and its lenders could trigger 'a collapse of all the Greek economy has achieved' (Photo: Eric Maurice)

Greece and its creditors were preparing for a crucial Eurogroup meeting on Thursday (18 June) amid growing concerns of a Greek exit from the eurozone or even the EU.

The alarm was raised by a Bank of Greece report warning that the crisis could get out of control and "relegate" Greece "to the rank of a poor country in the European South" if no deal was reached before 30 June to lend €7.2 billion to Greece.

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"Failure to reach an agreement would mark the beginning of a painful course that would lead initially to a Greek default and ultimately to the country's exit from the euro area and – most likely – from the European Union," Greece's central bank warned in its annual report on monetary policy.

"A manageable debt crisis, as the one that we are currently addressing with the help of our partners, would snowball into an uncontrollable crisis, with great risks for the banking system and financial stability."

The consequence would be "a collapse of all that the Greek economy has achieved over the years of its EU, and especially its euro area, membership"

The bank's governor is Yannis Stournaras, finance minister from 2012 to 2014 in Antonis Samaras' centre-right government.

"The central bank has been warning the Greek government for several months, explaining the consequences and the risks of the situation. It is more on the creditors' side than on the governement's side," an EU source told EUobserver.

"Stournaras is a good technician, while the government doesn't weigh all the consequences," the source said, adding that the bank's report "reflects the pessimism of the creditors".

"[He] has a seat at the European Central Bank's governing council. He is aware of the debates and he sends message."

The speaker of the Greek Parliament, Zoe Konstantopoulou, said the central bank's report was "unacceptable".

“Stournaras has contributed to the fiscal, memorandum-based policy. He now tries, in a non-democratic way, to prevent the ultimate debt write-off claims of the government,” she said.

Meanwhile, talks for an agreement were still stuck on Wednesday, with Greece and the institutions (the EU, European Central Bank and International Monetary Fund) waiting for the other side to present a new proposal.

The discussion between eurozone finance ministers at the Eurogroup could "be pretty short", said another EU official, adding that "many gaps remain between the institutions and the Greek authorities".

"Ministers will certainly conclude that the ball is in the Greek camp," the source said.

The divergences between Greece and its lenders are "not only a fiscal gap, it has very much to do also with the structure of the tax system and with pensions," the source explained.

This "has a fiscal impact in the short run and fiscal sustainability implications in the medium- and long-term which are much more important than people realise."

The IMF and ECB chiefs, Christine Lagarde and Mario Draghi, will participate in the meeting. But if no progress is made, an emergency summit of EU leaders could be organised during the weekend.

A regular EU summit will take on 25-26 June. But it would be very late by that time to draw up an agreement to be endorsed by all member states before 30 June, especially where a parliament vote is needed.

Whenever a deal is clinched, "a hell of a lot of work," will still have to be done, said the EU official.

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