Why is Grexit still possible despite agreement?

The signature of the agreement between Greek Prime Minister Alexis Tsipras and the Euro area member countries has been welcomed by the overwhelming majority of European political leaders, on the contrary to a growing portion of their citizens who seemed far less confident in the ability of Greece to respect its commitments. But reality soon regained precedence over the satisfaction of having “saved Europe”.

First, Tsipras himself confessed he has signed an agreement in which he does not believe, and although he convinced the Greek parliament to ratify it, its rejection by former Finance Minister Yanis Varoufakis provided further evidence that a political crisis which could prevent the implementation of the agreement is possible. Second, most of the economists agreed that Greece will not abide tomorrow by harder commitments than those it was unable to deliver yesterday, especially with reduced or inexistent economic growth.

The agreement that has prevented the impending “Grexit” – Greece’s exit from the euro area – would actually be inapplicable as it is and would thus require a massive debt relief, explained the IMF. Even within the German government, particularly with Finance Minister Wolfgang Schäuble, doubt dominates and hardly a few shared the “triumphalism” expressed by their French counterparts.

By adopting additional reforms required by the agreement, the Greek parliament made “a step further, an important step,” Schäuble said. But precisely because Germany refuses the debt relief recommended by the IMF, a temporary Grexit “would perhaps be the better way for Greece”, Schaüble added. Therefore, signing up for the agreement avoiding Grexit has possibly made Grexit likelier. Quite difficult to restore stability in these circumstances.