The government of Greece managed to meet the deadline to make a 448 million euro payment on its IMF loan. Questions remain, however, about its ability to make future payments in the coming weeks and to secure more bailout funding.
That may explain the tone of some of the strident statements coming lately from Athens and the government of Prime Minister Alexis Tsipras, whose election in January was welcomed wholeheartedly by the European Socialists. Over the last several weeks, senior officials in Athens have reportedly threatened Europe with the possibility of default, hinted at leaving the Eurozone and returning to the drachma, suggested nationalizing the banks or maybe even abandoning western debtors for Putin’s Russia. This kind of language has provoked even credible sources to consider the scenario of Greece being the first-ever developed country to default to the Bretton Woods institutions.
It calls to mind one of Margaret Thatcher’s more memorable aphorisms from a 1976 television interview: “Socialist governments traditionally do make a financial mess. They always run out of other people’s money. It’s quite a characteristic of them.” In that sense, the government of Greece, led by the far-left Syriza party, has definitely shown its socialist colors. They’re running out of other people’s money.
“We are a Left-wing government. If we have to choose between a default to the IMF or a default to our own people, it is a no-brainer,” said a Greek government official recently, according to The Telegraph. But a Greek default and euro exit, although it would certainly impact the Eurozone, would likely wreak more havoc on Greece itself. How would the markets respond to a new drachma-based Greek economy, exposed to a huge debt burden denominated in euros and other currencies, a staggering 26 percent unemployment rate and declining economy? Ultimately, the government of Greece must avoid default to the IMF in order to avoid default to the Greek people.
That may seem too simple, but is it? Clearly, the European Union is losing patience, saying that Greece, according to recent reports, has been acting like a “taxi driver,” continuing to ask for cash without detailing any serious plans for reform. Greece and its lenders, though, are in this situation together. On the one hand, the Eurozone countries and the Troika do not want to see a Greek default. On the other hand, Greece might ruin its best chance to overcome its crisis if it fails to accommodate and strike an agreement with its debtors. Ultimately, it is not the IMF who will suffer from the consequences of a default, but the Greek people. And that point will come…when the ‘socialist government runs out of other people’s money.’