Commentary: Greece stirs eurozone

Author: Will Beacham


The eurozone may be lurching towards another crisis of confidence as Greece edges closer, once again, to a confrontation over progress towards austerity measures which are a condition of the current bailout agreed in 2015.

Chemical industry executives will not welcome any deterioration in confidence in Europe where purchasing manager indexes have shown nascent signs of improvement in recent months.

Disagreements between Greece’s international creditors, the eurozone and the International Monetary Fund, have emerged over the state of the country’s economy and the future approach to servicing of the debt. Greece needs a new injection of funds from the existing €86bn bailout by the third quarter of 2017 or it risks defaulting on its debts. This would likely lead to the country exiting the euro though it could remain in the EU.

On Monday, 6 February, divisions within the IMF itself boiled over into the public domain when it emerged that EU countries had challenged IMF forecasts for Greek economic growth. Brussels argues that the IMF is being too pessimistic in its forecasts which suggest that Greek debt – without relief – will spiral out of control after 2022 as economic growth will not support the burden. Without agreement between the EU and IMF, it may be impossible to agree the terms of any future bailout.


Greece needs agreement over future bailout conditions

There is a meeting of eurozone finance ministers on 20 February where markets will be expecting some signs of progress towards an agreement on the bailout package. Greece, on the other hand, has said it will not accept harsh austerity measures as part of any future package, arguing it has made substantial progress.

Interest rates on government bonds have spiked to over 10%, the highest level since June 2016, as investors worry about the country’s ability to service debt. Greece has lost 25% of its GDP since the financial crisis of 2008 and has a €330bn debt burden.

As the Greece issue rumbles on, other threats to the euro and EU are rearing their heads. France holds presidential elections on 24 April 2017. Far-right party the National Front has been gaining popularity and has promised to renegotiate the country’s relationship with the EU. Candidate Marine Le Pen – which polls give around 25% support – will also hold a referendum on EU membership. Meanwhile, The Netherlands goes to the polls on March 15 with one anti-establishment candidate pledging to scrap the euro and reintroduce border checks. In Germany, Angela Merkel hopes to be re-elected as German chancellor in September.