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Eurozone's poorer nations take hard line on Greece

By Agencies - Jul 06,2015 - Last updated at Jul 06,2015

BRATISLAVA — The eurozone's poorer former communist nations, having themselves endured painful market reforms and austerity programmes, are taking a hard line on Greece after its people voted to reject bailout terms.

Estonia, Latvia, Lithuania and Slovakia have long insisted they are too poor to pay for the mistakes made by wealthier Greece and that it should have stuck to the reforms and austerity measures laid out in its massive 240-billion-euro ($273 billion) bailout. 

"I hear some Greeks have pensions over 1,000 euros ($1,100) a month. That's outrageous. I refuse to pay for their debt while they are making fortunes compared to my salary," Bratislava waitress Martina Lelovicova said on Monday in a country where the average monthly salary is 880 euros.

"It's good news for the eurozone. Greeks should leave it, this will only make it healthier," a Bratislava entrepreneur in his thirties who wished to remain anonymous said of Sunday's Greek referendum result.

Slovak Finance Minister Peter Kazimir, the first Eurogroup minister to warn that the Greek 'No' raises the spectre of a "Grexit" or exit from the euro, told reporters: "With the result of the referendum, a possible crisis scenario, the gradual withdrawal of Greece from the eurozone, is unfolding."

Slovakia, an ex-communist nation of 5.4 million people that joined the eurozone in 2009, has suffered stubbornly high joblessness despite brisk economic growth in recent years.

Its leftist Prime Minister Robert Fico insists "Slovakia will not be harmed as a result of Greece and its decision to stay or leave the single currency union", as Bratislava "did not give any cash, only our guarantees" as part of previous Greek bailouts. 

'Bad and worse choices left' 

But not all poorer eurozone members have nothing to lose: Estonian President Toomas Hendrick Ilves tweeted Monday that "Greece's creditors [are] not just banks".

"Eurozone countries poorer than Greece stand to lose up to 4.2 per cent gross domestic product," he wrote. 

Prime Minister Taavi Roivas for his part said Greece "now only has bad and worse choices left" and reforms "are unavoidable". 

"We expect the Greek government to understand the situation and show decisiveness and action within hours," he added.

Having broken free from the crumbling Soviet Union in 1990-91, tiny Estonia and Latvia joined the eurozone in 2011 and 2014 respectively, followed by neighbour Lithuania in January this year. 

All three Baltic states implemented drastic austerity measures to recover from deep recessions triggered by the 2008-09 global financial crisis, paving the way to eurozone entry and stable economic growth, now around 3 per cent in the region.

Estonia, the eurozone's smallest member since 2011, approved an initial Greek bailout but has since said “No” and insists that all eurozone members adopt its strict fiscal discipline.  

Tallinn boasts the eurozone's lowest debt-to-gross domestic product (GDP) ratio of 10.6 per cent.

"Estonians don't really understand the Greek attitude. We are used to saving and living frugally," Merit Kopli, editor in chief of Estonia's leading Postimees daily, told AFP.

Maie Mets, a 72-year-old pensioner, said: "As I understand it, the Greek standard of living is higher than ours here in Estonia. It is only normal that people pay their debts."

'No sympathy' 

Latvia was hit hard by the global financial crisis, suffering the world's deepest recession when GDP shrank by nearly a quarter over two years. 

Yet the nation of some 2 million bounced back after implementing austerity cuts under the terms of a 7.5-billion-euro international bailout it secured to avert bankruptcy. 

"When we went through the international bailout, did anyone come to rescue us?" asked Zenija Lace, a 61-year-old Riga office worker. 

"I have no sympathy for the Greeks. They should have started paying taxes long ago. If they want money from Europe, they should have started saving!" added 59-year-old Riga businesswoman Brigita Petersone. "How is it that we could endure all of it and they can't?"

Separately, Greece leaving the eurozone has tipped over to become the base case for many international bank economists after Sunday's overwhelming “No” vote against further austerity imposed by creditors.

A Reuters poll of more than 70 economists published a week ago, just before Greece defaulted on a 1.6-billion-euro payment to the International Monetary Fund (IMF), placed the median probability of Greece leaving the eurozone at 45 per cent.

Since then, BNP Paribas, J.P. Morgan, RBS, Barclays and Societe Generale, among others, have revised their forecasts for Greece to remain in the eurozone and are now expecting it to leave. 

Other banks, like Investec, have flagged it as a serious risk that may soon become the most likely outcome.

While few put an exact figure on the probability, that suggests the consensus has now risen above 50 per cent, at least among large international bond dealers.

"We argue that EMU [European Monetary Union] exit now is the most likely scenario," wrote economists at Barclays in a note, even before the final referendum results were in.

"Agreeing on a programme with the current Greek government will be extremely difficult for European Union leaders, given the Greek rejection of the last deal offered and will be a difficult sell at home, especially at the Bundestag or in Spain ahead of the general elections."

There was a more muted response to Sunday's vote from financial markets while some other economists were also more sanguine.

"An easier route towards a resolution has been ruled out and therefore the risk of a Grexit has risen," wrote Investec chief economist Philip Shaw, who a week ago put the probability at 35 per cent.

"This is probably not quite our baseline case yet, but it might well be should the signs of a political agreement not become convincing over the next two days," he said.

Several bank economists were confident enough that Greece will leave the euro to forecast it before any political discussions took place.

"It seems more likely than not that Greece will leave the euro at this point, 60 per cent chance," wrote Nick Kounis, economist at ABN Amro, who gave just a 30 per cent probability in the Reuters poll published last week.

"The prospects a deal with creditors have dimmed, and in the meantime the Greek economy will suffer even more severe economic and financial pain," Kounis wrote.

Erik Nielsen, the chief economist at UniCredit, was even more forceful.

 

"My bottom line is that the outcome of the Greek referendum has significantly increased the risk of Greece leaving the eurozone, which is now by far the most likely outcome. The process may start within days or weeks, but it won't be a smooth ride into a new currency. It'll be chaos with political ramifications,"  he said.

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