By: DailyForex.com
It would be fair to say that there has been a breakdown in trust between Greece and its major creditors within the EU and (to a lesser extent) the IMF stemming from the election of Syriza in January and its antics in discussions designed to help Greece square the circle between popular demands and economic reality. Faced with a straight choice between leaving the Euro (and the realisation that Eurozone partners were preparing for such an eventuality) and asking for a further bailout with its implicit acceptance of further austerity and reforms, Greece chose to remain in the Euro.
The nation states that make up the EU and those that share the Euro wanted to see Greece remain within the single currency, so a deal was struck which involved a third bailout worth approximately €85 billion, but release of tranches of funding was dependent upon the passing of key structural reforms into law – Syriza (or more probably, its leadership under Mr Tsipras) went to the electorate to renew their mandate and were returned to power with a smaller majority. It now controls 153 votes of the 300 seat assembly, so its long-term viability is increasingly in doubt, given the nature of its coalition.
In a vote on Thursday, required to obtain the next tranche of Eurozone funding, that majority shrank to just two seats with the defection of two Syriza members from the party line. The vote which concerned regulation on tax arrears and foreclosures due to mortgage arrears was passed enabling the release of €12 billion, €2 billion of which will cover national debts and €10 billion will help prop up the nation’s four biggest banks.
The EU has made it clear that Greek debts will not receive a “haircut” and must be repaid in full, however, it has strongly suggested that a debt restructuring (i.e. extending the repayment period and, possibly, reducing interest payments) could be considered if acceptable progress is made towards the reforms and cuts that the lenders insisted on as conditions of the bailout loans.