It is the first instance in modern history that a high-income, developed country has turned into a middle-income country; and is in huge economic crisis struggling for its existence. On 30 June, Greece reached a peculiar situation, whereby it refused to pay due installment of IMF loan. It is notable that if a nation in not able to repay its sovereign debt it is declared bankrupt. This refusal is about repayment of installment of $1.8 billion on $270 billion loan given to Greece as a bailout package by a troika of International Monetary Fund (IMF), European Central Bank (ECB) and European Commission (EC). In July, another repayment of $3.8 billion is due to European Central Bank. This situation has cropped up as talks between Greece government and creditors failed on 29 June. Although this crisis is not a recent one, and Greece has been facing the pressure of conditions imposed by creditors with regard to  punitive taxation and austerity measures, the situation took a different turn after January 2015 election in Greece, in which Alexis Tsipras registered a sweeping victory and became Prime Minister. Tsipras, with leftist leanings fought the election on the issue of not accepting austerity measures. With this battle lines were drawn between the Greek government and creditors.

Greece says conditions imposed by the creditors are causing pauperisation of its people. They argue that the troika of creditors (IMF, ECB and EC) has not spared any measure to ruin Greece. Though creditors are talking about bringing Greece out of crisis, Greeks are actually getting poorer by these conditions. Greece has been demanding dropping of austerity measures and renegotiation of loans and new bailout package.

On the one hand creditors are adamant about Greece agreeing to austerity conditions, and maintain that no relief can be given in repayment; on the other, the country has been demanding a unconditional bailout package. Greece is preparing for a referendum on the issue, where ‘Yes’ would mean conceding to higher punitive taxation and curtailing of pension and ‘No’ would mean renegotiation with creditors for better terms. The leadership wants people to say no.

If Greeks vote against austerity and higher taxation, it would virtually mean ouster of Greece from the Euro Zone; and creditors may declare Greece a defaulter. Though Greeks also do not want this ‘tag’, they cannot also accept austerity.

The genesis of Greek crisis is in Athens Olympics 2004, organization of which was marked by extravagant expenditure, beyond the capacity of Greece. This coupled with rampant corruption of previous governments; and Euro-American financial crisis starting from 2007-08, the worst ever after the 1930s, are some of the factors that pushed Greece to the brink of bankruptcy. However, Greece is not the only country facing economic crisis. Cyprus, Ireland, Italy, Portugal, Spain, and a host of other countries have been facing economic problems of varying degrees.

It is notable that countries facing economic crisis have been provided bailout packages by IMF, ECB and EC. Greece got two bailout packages, one in 2010 and another in 2012. However only 10 per cent of these bailout packages reached Greece; the rest went to creditors. Austerity and punitive tax measures have resulted in decline in Greece&’s GDP by 25 per cent in last five years and youth employment has peaked at 60 per cent by now. Yet, creditors want that Greece, bring down its Primary Budget Deficit to 3.5 per cent of GDP by 2018.

Impact of these conditions if allowed to continue, would further trap Greece into deep depression. Thus Greece is not willing to accept conditions imposed by creditors and has been asking for an unconditional bailout package; and a chance of revival from this crisis. Because this was not offered, the government planned a referendum. Though EU leaders continue to exert pressure on Greece to cave into their demands; they themselves are not much in favour of a referendum on Greece opting out of Euro Zone. Knowing this helplessness of EU, Greece&’s government is also exerting pressure on EU to grant unconditional bailout package, by taking a mandate from its people.  Though, France, Italy and Germany have warned Greece that it may lose Eurozone membership, they also understand the repercussions.

Greece today is standing at the crossroads. There cannot be two opinions that if they accept austerity measures, their downtrend in incomes and employment would further worsen. However if leaders of EU harden their stand and expel Greece from Eurozone, again life is not going to be easy.

Both these options have their own advantages and disadvantages. At the same time Greeks and its government are wise enough to understand the susceptibility of European Union that it would also not be very comfortable taking the decision to decide on ouster of Greece from EU. In the meanwhile Nobel Laureate Joseph Stiglitz, siding with Greece&’s government has hinted to Greeks not to accept austerity conditions as given by creditors in the proposed referendum.

Now when the possibility of Greece coming out of Eurozone looms, experts say that it is not going to be the end of the world for Greece. 

It is clear that anything less than complete waiver of loan is not going to bring life to Greece. If EU hardens its stand, Greeks can give them a chance to rebuild Greece, by walking out of EU.

(The writer is Associate Professor of Economics, PGDAV College, University of Delhi.)