Hey, remember me? Never far from a crisis, Greece and its debt troubles have recently flared up again.
Several years after the country succumbed to a nasty debt crisis, Greece still relies on a series of international bailouts to keep its economy afloat. As anyone who remembers the summer of 2015 can attest, this “rescue” is both tenuous and tumultuous. Greece gets it bailout funds in dollops in return for enacting austerity measures and structural reforms demanded by creditors. The Greek government’s progress unlocking the next tranche of its bailout loan isn’t going well, so investors are starting to worry the process could be derailed.
Last week, talks with European creditors broke down after the Greeks admitted that almost two-thirds of the actions they need to take to release the money hadn’t been completed, according to Bloomberg. Such brinksmanship isn’t new, but markets aren’t ignoring the possibility of a nasty surprise. The yield on Greek government bonds due for repayment in July climbed above 11% on Jan. 31, from about 5.5% a week earlier. (The price of bonds move inversely to yields.)
A deadline for the conclusion of Greece’s bailout review is set for Feb 20. Further complications arise from the International Monetary Fund. Several European countries (most notably Germany) have said the IMF’s participation in the bailout is essential. So far, the institution has resisted contributing any more to the rescue unless something is done to restructure Greece’s massive debts; it considers the current plan doomed to fail otherwise. Germany and other creditors, however, are resisting debt relief that would come largely at their expense (both financially and politically).
The chances of the IMF getting involved dimmed further last week when its draft review of Greece’s economy was leaked. The paper showed that the IMF believes Greece’s debt is “highly unsustainable” and will reach an eye-watering 275% of GDP by 2060 (paywall).
Investors are particularly jittery because Greece has a repayment of more than €2 billion ($2.2 billion) due on the bond that matures in July 2017. Even after billions of euros in loans extended over the past seven years, the country’s economy continues to sputter, unemployment remains stubbornly high at 23%, and public debt stands at around 180% of GDP.
For experienced Athens watchers, nervousness around bailout reviews is a familiar feeling. But the world outside of Greece has changed, with Brexit, Trump, and upcoming European elections presenting bigger, existential threats to the EU’s established order. Maybe, just maybe, that’s the push that the parties involved in Greece’s debt standoff need to end their long-running stalemate once and for all.