Greece on a tight leash

The clarification of the eurozone’s plans regarding Greece did not come from the usual political channels, from Brussels or from one European capital or another. It came instead from the head of the Eurosystem, European Central Bank President Mario Draghi. The ECB chief stressed that for Greek banks to be included in the two-year program for boosting liquidity via the purchase of asset-backed securities and covered bonds, the country must be the subject of a bailout program or under some form of supervision.

It is clear that the preconditions set by the ECB are in concert with what both Brussels and Berlin want in terms of the degree of freedom that this or any ensuing Greek government may have when forging and implementing economic and social policy, as well as when drawing up a new growth model. Greece’s partners and creditors obviously still lack faith in the country, despite the progress it has made in implementing a tough fiscal adjustment program over the past four years and more. Greece will remain in the Eurosystem, according to the partners’ plans, but its inflows, from banks and from the European Community, will be strictly monitored and limited to the extent that the country will still be allowed to function but will not really be able to bounce back, at least in the short term.

It is noted that Greek banks have a total of 44 billion euros in securitized loans. Meanwhile, EU-backed funding via the National Strategic Reference Framework for the 2014-20 period has been approved at 26 billion euros. With these funds, and with the capital that can still be raised, Greece could form a plan to stimulate the economy and restructure its production base.

The crucial question, therefore, is whether Europe wants to see Greece rebound soon. And if so, in what way and at what cost. There are no easy answers. How Europe will swing from here on out will depend on developments in France and Italy and on the front opened by Francois Hollande and Matteo Renzi against Berlin, as well as on whatever is decided at the extraordinary summit of EU leaders on October 8. In short, we need to see how things play out at the core of the eurozone, while political developments on the domestic front will also play a critical role.

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