A Greek way out? CEPS Commentary, 5 February 2015

In his analysis of the basic compromise that is emerging between the new left-wing government of Greece and its European partners, Daniel Gros emphasises that the key element will be how the real problem, namely liquidity, is dealt with.

The Greek Austerity Myth. CEPS Commentary, 10 February 2015

Since Syriza’s victory in Greece’s recent general election, some fear a return to the uncertainty of 2012, when many thought that a Greek default and exit from the eurozone were imminent and that a Greek debt crisis could destabilise – and perhaps even bring down – Europe’s monetary union. CEPS Director Daniel Gros explains in this CEPS Commentary how this time really is different.

The Greek economy is unlikely to benefit from further devaluation. CEPS Commentary, 3 July 2015

Martin Wolf offers an excellent analysis of how the Greek voter may feel about Sunday’s referendum.1 There is no good option: either be engulfed in the chaos following the rejection of the programme, exit and collapse of the economy or accept another programme.

The 2015 Greek Referendum. EPIN Commentary No. 24, 3 July 2015

The Greek government called a snap referendum on the proposals advanced by the EU partners and creditor, i.e. the draft Agreement submitted by the EU/IMF to the Eurogroup of 25 June 2015. There has been a major controversy among Greek constitutional lawyers about whether this referendum meets constitutional requirements. No doubt, the constitutional validity of this referendum could be challenged on pure normative terms (nature of the question, time limit); yet this shock call for a referendum appeared as the only political solution for the Greek government facing the dilemma of whether to take the plunge of having five-months of negotiations transformed into a negative-sum game.

A Greek tragedy in the making. EPC Commentary, 6 July 2015

One thing is clear: the Greek people have emphatically voted ‘No’, providing a boost to Prime Minister Alexis Tsipras and plunging Greece and the Eurozone even more into uncertainty. But it might, at the end of the day, prove to be a hollow victory for the Greek Prime Minister: the vote cannot compel the rest of the Eurozone to open their coffers and provide the funds Greece so desperately needs. It is certainly not a victory for democracy: it is highly questionable whether the Greek people could form an informed opinion, given the short time frame, the unclear question relying on a proposal no longer on the table, and the high level of misinformation on the potential consequences of the vote. This is no victory, neither for Greece nor the EU and its members: in the end, it increases the danger of Greece leaving the Eurozone – and potentially even an eventual exit from the EU –, which the people of Greece clearly do not want, as 75-80 per cent of citizens firmly want the country to stay in the euro.

Restructuring the Greek banking sector with an empty purse. CEPS Commentary, 13 July 2015

Greek banks are close to collapse, even if a new bail-out programme is agreed soon. The deterioration of the economy means that their fragile capital position is deteriorating further. In this CEPS Commentary, Daniel Gros observes that any new programme needs to include recapitalisation, comprising possibly a bail-in and restructuring to get the banking system working again. With only a small part of the assets unencumbered and a government with empty pockets, the depositors might have to take a large part of the burden. As private investors are unlikely to participate in a recapitalisation, foreign official funds will be needed. A direct equity investment by the EIB or the EBRD could be used to transfer control rights, and special ESM bonds could be used to provide additional capital without entailing additional risk to the creditors

Reform momentum and its impact on Greek growth. Bruegel Policy Contribution 2015/12, July 2015

Greece has an imperfect track-record of structural reform implementation. However, the poor growth outcome of the Greek programmes is also a consequence of the timing and composition of reforms, which were not optimally geared towards a speedy transition to a new growth model based on the private sector. While the main responsibility for this lies with the Greek authorities, international institutions share the responsibility for the poor growth-enhancing effect of reforms. In the current context, further structural reform efforts should be mainly targeted at supporting Greece's speedy return to solid growth rates. This is not only because poverty and unemployment have reached very high levels, but also for political economy reasons: reforms must quickly be seen to be working in order to buttress the consensus in favour of reform. Further efforts should be made to improve Greece’s business environment and to liberalise product markets, in addition to shifting taxation away from labour and towards consumption. Reforms to improve the quality of institutions should continue and are very much needed in the Greek setting, while taking into account that their demanding implementation might use up administrative capacity and their impact on growth will only be seen over long time horizons.

Addressing the immediate needs of the Greek banks. CEPS Commentary, 31 July 2015

Based on a detailed calculation of the recapitalisation requirements of the Greek banks, we find that the sector needs an infusion of capital, but that the level largely depends on the stringency of the capital requirements applied. An expedient quick fix to comply with the minimum capital requirements could be achieved by a bail-in of existing creditors under the EU Bank Recovery and Resolution Directive of around €5 billion, leaving only €6 billion needed for re-capitalisation. If the ‘Cypriot’ standard is applied, however, the required re-capitalisation would be €15 billion. A ‘generous’ approach, which takes into account the phasing in of the new more-stringent capital requirements until 2018, would imply a re-capitalisation of €29 billion (or more bailing-in of creditors). The re-capitalisation should be undertaken preferably by the EIB, the EBRD or the new Greek investment fund, rather than via loans from the ESM to the Greek government.