European Union Divided Over Greek Bailout

The Greek dilemma: Greek Prime Minister Alexis Tsipras did not get the support he expected from Russian President Vladimir Putin (top); meanwhile Greeks have had enough of austerity

NEW HAVEN: For a brief moment after Greek Prime Minister Alexis Tsipras touched down in Moscow last week for meetings with Russian President Vladimir Putin, it seemed as if the eurozone’s agonizing debt crisis might end with the restructuring not of Greek debt but of European politics. Tsipras hoped Russia might provide loans to lighten the load of austerity, while the Kremlin sought to sow divisions within Europe.

The results of the Putin-Tsipras summit, however, were far less conclusive than many had feared. Greece failed to win substantial economic aid from Russia, and in turn made no commitments to veto the extension of European Union sanctions on Russia, which come up for renewal this summer. Indeed, the main result of Tsipras’ jaunt to Moscow was to underscore the extent to which Greece and Europe are stuck with each other. If Greece stays in the eurozone, the only option is further negotiations with Europe.

After the election of the far-left Syriza party,  the crisis seemed to turn a corner. The contradictions between Syriza’s refusal to tolerate continued austerity and creditors’ unwillingness to provide further funds without painful reforms raised hopes that Greece might either see relaxed bailout terms or be forced to leave the eurozone.

Three months into Syriza’s government, however, the reality has barely changed. European creditors have softened some bailout terms, but not nearly enough as Syriza had promised. The European Central Bank, fearful of German criticism and skeptical of reform promises, continues to take a hard line on terms of credit to Greek banks. If the ECB were to withdraw financial support, it would force Greece’s banks and the country’s entire financial system into bankruptcy, reversing the tenuous economic upturn.

http://yaleglobal.yale.edu/content/european-union-divided-over-greek-bailout