Today’s news that the Greek authorities have agreed an extension with European Union partners in relation to the country’s massive bailout has obviously been headline news. There were serious concerns that Greece would immediately drop out of the European Union and ditch the euro leaving the region in a state of confusion. It seems as though the authorities and their creditors have agreed a four-month period during which agreed bailout payments will be made available predominantly to support the Greek banking system which is on the verge of collapse. So, is this the game changer which many people had hoped for or is there much work to be done?
There is no doubt that ongoing problems in Greece have impacted the European Union as a whole and indeed many are now cautious about investing in European real estate. However, where do we go from here and can the far left Greek government work with its European Union partners?
Disaster averted in the short term
While many in Greece and the wider European Union will be breathing a sigh of relief today there is still much work to be done and many questions to be answered. The collapse in the Greek economy has had a massive impact upon the real estate market with investors running for the hills amidst clouds of confusion and anger. The introduction of a far left government in the recent election was not a total surprise but many of the new government are relatively inexperienced and seem very keen to appeal to the masses of Greece.
One problem which has not been discussed at great length is the fact that the new government effectively won the day amidst a promise to ditch the austerity measures agreed with the European Union. There was even talk of the country looking further afield for financial support with Russia and China, two large players in South America, said to be waiting on the sidelines. So far the country has decided to stick with the European Union in the short term but where do we stand in the longer term?
Should there be agreed exit routes for European Union members?
The fact is that the European Union grew fairly quickly taking in an array of different economies moving at very different speeds. Once the worldwide crisis began to kick in and economies began to struggle a pause on new membership was announced – something seen as a very sensible move. While there is a definitive timescale and procedure for joining the European Union, should there be an agreed exit route for those members looking to remove themselves from the European Union in the future?
At this moment in time experts believe that a Greek exit from the European Union could be potentially catastrophic and have a massive impact upon the European real estate market. Even George Osborne, the Chancellor of the Exchequer, commented this week that a Greek exit would certainly not be in the interests of all members. The fact is that nobody really knows what possible impact a Greek exit could have on the European economy and the euro. Therefore it is unlikely that European Union leaders will even contemplate a structured exit route even though many investors would prefer to see more transparency.
While there was most certainly a sigh of relief when the Greek authorities announced a deal with their European Union counterparts there is still a lot of work to do. The four-month extension will see bailout payments paid in accordance with the original agreement while a further long-term arrangement is put in place. It is difficult to see much middle ground in the medium to longer term with the far left Greek government voted in on a promise to put the Greek population first. Indeed some would suggest that the Greek government has already failed its first test having backtracked on threats to effectively default on its European Union bailout agreement. Germany, in the shape of Chancellor Merkel, has steadfastly refused to make more money available to the Greek authorities, reduce the austerity demands or indeed change the bailout conditions to any great extent.
While we can breathe a sigh of relief today it is difficult to see how a medium to long-term arrangement can be agreed between parties which are polarised to say the least!