Greece and the euro area came to the brink of collapse. That’s what both Greek and European officials have repeated after the 10-day drama led finally to a so-called in extremis deal that kept Greece into the common currency zone and gave its bailout a 4-month extension.
Beyond the immediate sentiment of relief – stock markets have welcomed the news with a prolonged rally – the facts might show that all this should rather be considered fragile and temporary. The agreement has stirred discontent within the most radical ranks of the left-wing party Syriza and that could create some untimely political instability in Greece, although most of the Greeks welcomed “the short but sweet sequence of resistance” from the Tsipras government.
Liquidity problems will increase in the coming months and it will be the turn of the IMF and then the ECB again in July 2015 to demand the resolution of Greece’s debt. In the meantime, Spain is likely to elect a Syriza-like government with the far-left party Podemos suddenly finding itself at the top political posts. The Eurogroup specialized in dealing with debt issues however it will likely be powerless in the face of the resulting political risk. 4 months and then what? When nobody knows, can one talk about stability?