Greece in dire distress

Tsipras and Varufakis

He achieved a Pyrrhic victory in this struggle but he failed completely in his attempt to turn the Euro group into a charitable NGO. By waging an acrimonious quarrel with Mr Schäuble, he unwisely chose to clash with the country that holds the key in Europe. Now he will mete out justice with little mercy from his partners, just when this tug-of-war is bearing a heavy toll on the Greek economy.

Threatening to hold a referendum on a potential Grexit- should partners impose tough conditions for the extra money Greece badly needs- was a grossly miscalculated gamble. Germany readily took up the gauntlet of Varoufakis’ preposterous challenge, sternly welcoming the chance to leave the doors flung open should Greece look for fresh air outside the Euro. Berlin acidly stated it would stand as a win-win solution both for the Greek population and Europe.

This boutade shows to what extent Greece has alienated the support any new Cabinet in office usually receives when faced with grim prospects. Tsipras would be well advised to refrain from further escalating tensions with those that ultimately will foot his bill. He should immediately shelve his demands for debt write-offs, focusing instead on a credible plan for putting the Hellenic economy back on track. His domestic oratory may well secure widespread support among voters. Yet, now that the elections are over, he should concentrate on governing in a fully responsible way.

The main problem Greece faces has little to do with its hopeless public debt piling. Only an unlikely miracle will allow it to honour its pledges- two decades time from now. By stressing its future inability to pay back loans, Varoufakis is unwisely stressing the likelihood of a current default. No wonder ordinary citizens are frantically pulling their bank deposits, making the scenario gloomier still.

Tsipras has failed to understand that the current economic disarray has little to do with debt servicing or the discipline imposed on Greece by the Troika. It mainly stems from the awesome credit crunch that has wreaked havoc on firms and jobs. In trying to bully his partners, he has received a scathing blow from the ECB, as a vivid warning of the damage that it may inflict on Greece should its government go on with its defiant stance.

It is time for Tsipras to salvage his country from disaster. He should waste no time in providing sound evidence that he is ready to table a detailed reform plan that ensures both stability and growth. The sooner he comes to terms with his partners the better. Otherwise, the Greek economy could plunge into a new recession, eradicating any hope to forge an economic recovery. He has a unique opportunity to convince his partners in the European Council later on this week. He should not waste it for the sake of Greece and Europe.

About the Author

JP Marin Arrese
Juan Pedro Marín Arrese is a Madrid-based economic analyst and observer. He regularly publishes articles in the Spanish leading financial newspaper 'Expansión'.

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