Concerns that Greece’s economic troubles, rooted in decades of mismanagement, may spark a broader downturn have put the Greek debt crisis in the headlines once again. As repayment deadlines loom, the Greek government and its creditors are busy negotiating interim deals to relieve the economic pressure. Robert Kahn, CFR’s Steven A. Tananbaum senior fellow for international economics, offers three things to know about the Greek economic crisis and what it could mean for the global economy.
Incomplete reforms: “Greece’s fiscal challenge—a large and growing gap between its policy objects and what it can pay for—has roots in decades of incomplete reforms,” says Kahn. “Successive Greek governments have not made the fundamental reforms needed to put its finances on a firm footing.” Efforts to close the gap through a combination of spending cuts, debt relief, and structural reform have not been enough. The January 2015 elections that brought the anti-austerity Syriza party to power have strained negotiations between Greece and its creditors, as Syriza’s electoral platform rejected the European Union and IMF-backed bailout program and promised to expand social spending.
Time is running out: Coming to a framework agreement to unlock more bailout funding is critical for Greece’s ability to make “wage, benefits, and suppliers payments in the coming weeks,” explains Kahn. A comprehensive agreement may be months away, but the government will look to interim deals to temporarily relieve economic pressure, he says.
Global implications: Although Europe is better equipped to handle a crisis today than it was in 2012, “what happens in Greece still matters for the global economy,” says Kahn. A worsening situation could further weaken growth and “cause capital to flee the broader eurozone for safer havens,” he says. A weak eurozone would reduce demand for U.S. exports and put upward pressure on the dollar. The future of the eurozone—and Greece’s place in the global economy—depend on the choices that the Syriza government and its European partners make in the ongoing negotiations, he says.