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much political capital has been invested in the euro to let it die.
Overtveldt (2011) suggests that, in this scenario, there are two outlooks: one being that everything remains exactly the same, with the creditor countries carrying on lending Greece capital, and the other being that a structural reform occurs, in the hope of taking down the problem from the core. It is difficult to determine which scenario it would be and it deserves close observation.
To sum up briefly, Greece would stay in the Eurozone if there is strong political will from both Greece and the Troika. If the Greek government has the determination to implement austerity and reforms, while at the same time being capable of convincing the Greek people that it is for the best of the country and the people themselves, and if the Troika, too, considers that it is the best scenario that Greece stays and is willing to carry on providing financial support to Greece, then Greece stands a great chance of staying in the Eurozone.
Judging from the political atmosphere in both Greece and Troika in 2015 and 2016, this case scenario is highly possible. After all, the Greek sovereign debt ratio to the overall debt of the Eurozone in 2015 was a mere 3.5%3. It would not be too difficult economically even if the Troika decided to pay back the debt in full for Greece. Therefore, it comes down to the political will of both sides.
Leaving the Eurozone. Some scholars expect a GRexit, suggesting that it is for the best
3 Greece’s overall debt in 2015 was about 326.36 billion euros; Eurozone’s overall debt in 2015 was about 9440.25 billion euros (Trading Economics).
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that Greece leaves the Eurozone. For instance, Alcidi et al. (2012) and Roubini (2011) argue that in the short term, there is undoubtedly going to be chaos. A longer-term view, however, leads to somewhat different conclusions. After the initial overshooting of the exchange rate of Drachma, it is likely to return to an equilibrium and growth would slowly resume closing the output gap. Similar cases in emerging markets suggest that after ten years nominal GDP should return to at least its previous level. Plus, exports are likely to grow at a faster rate than that of GDP, thus increasing over time the capacity of the country to service foreign debt (Alcidi et al., 2012). These scholars claim that it is more logical to look at the long-term effects of Grexit as an exit that is likely to be followed by a U-shape pattern in debt service capacity.
One interesting opinion states that if Greece had declared bankrupt in the first place in 2010 without inquiring international assistance, the deficit would have had to be slashed to 0.0 percent overnight. That would have translated to more than 33 billion euros, and that would have had to be saved through a corresponding reduction of government spending, which connotes that the crisis would have appeared differently if there were not bailouts and that Greece was left on its own (Catsambas, 2016).
In short, no matter what end-game the third economic adjustment program could bring forth, it will be one of the three scenarios. Yet, since both Greece and the Troika have
expressed reluctance of a GRexit, and that the third economic adjustment program is already
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on the way, in the short run Greece is likely to stay within the Eurozone.
Concluding Remarks
The Greek government in 2015 filed for more financial assistance after the assessment that it may have to default without new bailout funds. As a result, on July18, 2015, it formally requested ESM for more financial assistance. The ESM, after meticulous assessment,
approved to grant Greece the third round of rescue plans, along with some conditional terms.
The MOU between the ESM and Greece lays out the four goals that Greece needs to achieve in return for the funds: restoring fiscal sustainability, safeguarding financial stability,
regaining growth, competitiveness, and investment, and establishing a modern State and public administration. As this package is still an ongoing program, no one can be certain about its future effects. There are, however, presumptions. There are scholars who consider that there have been fundamental changes to the situation in Greece so optimistic results could be anticipated. Nonetheless, comparing the targets with the factors that hampered the two bailouts, one can realize not much change has been made. Either way, though, whether the third economic adjustment program would function well this time around, the end result falls within one of the three case scenarios: Greece remains in the EMU with systematic reforms that are set out for future improvements, Greece remains in the EMU but without reforms, or Greece leaves the EMU. The first and second economic adjustment programs for Greece, along with the EFSF, had been proven to be a mess. Only time could tell if the third
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economic adjustment program would turn out to be a success. The Greek sovereign debt crisis till now is no longer a mere economic problem. Rather, political considerations are deeply involved as well. The result depends heavily on how politicians both in the EMU and Greece eventually decide to play it out.