Greece and the "bad cop" strategy
Negotiations between Greece and its creditors remain in gridlock. The next Eurogroup summit, bringing together the Euro Zone finance ministers, will be held on Thursday. An agreement is urgently needed, with due dates for Greek payments to the International Monetary Fund (IMF) approaching fast. The rising risk of a default is whipping up volatility in financial markets. The familiar questions are being asked yet again. What is the most likely scenario? Should we be worried?
Without rehashing the whole saga, we should begin by pointing out how important it is to understand how it has come to this since the debt crisis erupted seven years ago and how the situation stands for Greece at present.
2009: Greece, with a debt-to-GDP ratio of 98% already, announces that it will run a 15% budget deficit—far above the 3% ceiling provided in the European Growth and Stability Pact. The country’s bonds are gradually downgraded by all the ratings agencies, from A to CCC today.
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