Is There Any Way Greece Can Avoid Default?

Part of what divides Greece and its creditors is the detail of budget cuts and economic reforms demanded by eurozone governments and the IMF.

And the rest of the gulf is due to a monumental clash of expectations between the scope of what can be agreed by the deadline of 30 June.

What is clear both from what the Greek finance minister Yanis Varoufakis said last night and has released in his blog is that he is still arguing for a once-and-for-ever settlement – that includes a further reconstruction of Greek public sector debts to make them more sustainable.

He is arguing for a buy-out by the eurozone’s financing arm, the ESM, of the European Central Bank’s 27bn euros of loans to Greece – because the repayment schedule on these loans (or bonds) is yet another accident waiting to happen.

But although Varoufakis is doubtless right that it would be rational to pre-emptively remove this threat of probable future defaults, the eurozone is institutionally incapable of doing so at this juncture. It completely lacks the decision-making capacity – such is the dispersal of power between the member states and their respective parliaments.

If further cuts are socially and politically impossible for Syriza’s government, it needs to come up with some kind of bankable counter-offer.

Part of the sub-optimal political and economic compromise that is the eurozone, is that it can’t chew gum and walk at the same time. Greece needs to wake up to this inescapable if disappointing reality.
And if Greece’s government, led by Alexis Tsipras, wants to avoid default, it needs to concentrate on two issues in particular.

First there is the now small gap between Greece and the creditors on the scale of austerity required by 2018 – which has shrunk to the equivalent of just 0.5% of GDP in 2016.

Second is the demand by the creditors for cuts to Greek pensions.


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Craig Erlam

Craig Erlam

Senior Market Analyst, UK & EMEA at OANDA
Based in London, Craig Erlam joined OANDA in 2015 as a market analyst. With many years of experience as a financial market analyst and trader, he focuses on both fundamental and technical analysis while producing macroeconomic commentary. His views have been published in the Financial Times, Reuters, The Telegraph and the International Business Times, and he also appears as a regular guest commentator on the BBC, Bloomberg TV, FOX Business and SKY News. Craig holds a full membership to the Society of Technical Analysts and is recognised as a Certified Financial Technician by the International Federation of Technical Analysts.
Craig Erlam
Craig Erlam

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