The Greek economy is on its knees. The evidence is overwhelming that the previous austerity policies and bailout programmes have failed. Economist Dr Dennis Novy gives his thoughts on what lies ahead.
The Greek people have spoken and demand a fresh approach to the economy. The new government, led by Alexis Tsipras and his Syriza party, is trying to renegotiate the conditions of debt repayment. The burden needs to be reduced so that more money can flow into the Greek economy again.
Time is of the essence. The current bailout package runs out at the end of February. But the Greek government wants more time to negotiate. To fill the financing gap, it has proposed to raise new money through short-term borrowing. But the European Central Bank (ECB) is not willing to approve this measure.
The ECB holds the key as to whether the Greek government will be successful in its negotiations. The risk is that Greek savers will panic and pull their money out of Greece into safer Eurozone countries such as Germany and Austria. This would push Greek banks into a liquidity desert, providing a great threat to the wider Greek economy and perhaps even pushing Greece out of the Eurozone entirely. Only the ECB would have the power to calm the panic.
The economics is clear. The current economic situation in Greece is not sustainable. Politicians will have to find a compromise together with the ECB to ease the burden on Greece. In the end, they have a common interest: to avoid the breakup of the Eurozone. Rest assured that Spain, Portugal and other troubled Eurozone countries will watch very closely.
Dr Novy's previous appearance on Sky News:
To arrange an interview with Dr Novy, call Kelly Parkes-Harrison, Senior Press and Communications Manager, University of Warwick, firstname.lastname@example.org, 02476 150868, 07824 540863
Dr Novy has spoken on this topic for BBC News and Sky News. See his previous comments
To arrange an interview call Kelly Parkes-Harrison on 02476 150868, 07824 540863 or email email@example.com