This position ultimately proved untenable—Greece's creditors insisted that the government continue fiscal and structural reforms in exchange for the financial assistance Greece needed to stay in the Eurozone.
Tsipras portrayed his decision in July to ultimately agree to creditors' terms for a third assistance package as choosing between the lesser of two evils, with the less desirable option being an exit from the Eurozone. Many in the Syriza party opposed the decision and withdrew their support for Tsipras.
Faced with this loss of confidence, but buoyed by his apparent continued popularity with Greek voters, Tsipras chose to resign and seek a new popular mandate by calling a snap parliamentary election in September To the surprise of some analysts, Tsipras prevailed in the September election and formed the government that remains in place today.
Analysts viewed Tsipras's second electoral victory as a sign that although many Greek voters oppose the austerity measures implemented at the behest of Greece's creditors, they also firmly support Greece's continued membership in the Eurozone. However, public support for Tsipras has fallen as he has implemented a series of tax increases and spending cuts in order to secure continued financial assistance from Greece's EU creditors.
Some analysts question how long Tsipras can maintain support for his government's policy course. His ability to weather dissent could depend on the concessions he can win from Greece's creditors, particularly in the form of debt relief.
The crisis in Greece brought the EU and Eurozone into uncharted territory; no Eurozone member has ever defaulted, and the Eurozone's founding treaty does not contain provisions for an exit from the currency union.
Whatever the outcome, the crisis has significantly heightened political tensions and public dissatisfaction within the EU. Key European leaders have consistently reiterated German Chancellor Angela Merkel's conviction that "if the euro fails, Europe fails," reflecting their belief that possible "Grexit" from the Eurozone, the EU's flagship project, could seriously undermine the integrity of the Eurozone and even the EU itself.
Opinion polls have suggested that a majority of Germans would support a Greek exit from the Eurozone. Negotiations over the agreement for a third assistance package exposed deep disagreement among some Eurozone members over fundamental questions about the currency union's future.
An apparent split between France and Germany, long considered the driving tandem force behind European integration, was cause for particular concern for many analysts. While French and Italian leaders, among others, have emphasized the geopolitical and strategic importance of maintaining a unified Eurozone and EU, German, Dutch, Finnish, and other officials have stressed the importance of adhering to Eurozone fiscal rules.
A widely reported perception of Germany, Europe's largest and most prosperous country, imposing further austerity and economic hardship on Greece against its will has raised questions about Germany's role as the Eurozone's de facto leader and whether it essentially has too much power.
German leaders point out that Berlin also has the support of a number of other Eurozone members, including the Netherlands, Finland, Spain, and the Baltic States. Nonetheless, many analysts believe that lingering tensions and distrust related to the Greece crisis could cause lasting damage to the consensus-based structures and sense of EU solidarity that have been the driving force behind the European integration project.
The crisis in Greece is one of several challenges facing the Eurozone and EU that some analysts believe could contribute to halting or reversing at least some aspects of European integration for the first time since the end of the Second World War. Chief among these is the United Kingdom's vote in to leave the EU. Questions about the democratic legitimacy of EU institutions, particularly in setting economic policy, could pose a particularly difficult challenge.
In contrast, some observers counter that the crisis and other challenges currently facing the EU could produce some beneficial reforms and ultimately transform the bloc into a more effective and cohesive entity.
They point out, for example, that in response to the crisis, the Eurozone and ECB have already taken a number of unprecedented steps to permanently increase fiscal policy coordination and provide financial support to struggling member state economies. Along these lines, key French and German officials have endorsed a strengthening of the Eurozone's political authority and democratic legitimacy, including through the creation of a Eurozone parliament, although the degree of support for this proposal among other Eurozone members remains uncertain.
Europe is an important economic and political partner of the United States, and the impact of the crisis in Greece on the United States has been a key issue for Congress over the past seven years. During the Obama Administration, President Obama and key Administration officials repeatedly called for a swift and robust response from Eurozone leaders, underscoring the economic and strategic importance to the United States of a strong and unified Eurozone that keeps Greece as a member.
For the United States, the impact of the Greek debt crisis is uncertain. On one hand, U. On the other hand, the potential for a broader Eurozone crisis tends to multiply the importance of the Greek crisis.
These concerns are being temporarily overshadowed by the still-evolving unprecedented exit of Great Britain from the EU, referred to as Brexit. Over the short run, financial markets will closely monitor a number of issues, including 1 potentially diverging monetary policies between the Federal Reserve and the ECB; 2 ongoing questions regarding the direction of the Greek economy; and 3 and the economic impact of Brexit.
Under these circumstances, investors often turn to safe-haven investments. The combination of diverging monetary policies between the United States tightening and Europe and Japan accommodative and investor uncertainty increases demand for the dollar and dollar-denominated assets.
This increased demand for the dollar causes the dollar to appreciate against both the euro and the yen and can cause U. A weaker euro and yen relative to the dollar may boost exports from Europe and Japan at the expense of U.
Figure 3. Greece's Outstanding Debt. Figure 4. Notes: Data are for consolidated international bank claims on an ultimate risk basis, accessed on April 5, Foreign claims include claims on Greece's public and private sectors. Other potential exposures include derivatives contracts, guarantees extended, and credit commitments. More broadly, the Greek debt crisis and Brexit are absorbing much of the attention of European policymakers and restraining their ability to focus on other important financial, economic and trade issues that affect a broad range of ties between Europe and the United States.
Over the long term, a resolution of the Greek debt crisis, whether or not Greece stays in the Eurozone, could remove one important source of uncertainty in international financial markets. In such a case, demand for dollar-denominated assets potentially could ease as investors regain interest in euro-denominated assets. Increased demand for the euro relative to the dollar would tend to appreciate the value of the euro relative to the dollar. While a lower exchange value of the dollar would tend to improve the international price competitiveness of U.
Depending on how quickly trade volumes responded to the change in the value of the dollar, the U. A robust European economy is important for U. The United States and EU have the world's largest trade and investment relationship.
The decline in the value of the euro relative to the dollar in and and low interest rates in Europe have enticed U. The comprehensive nature of the agreement potentially could improve access by U. T-TIP was intended to spark economic growth and job creation among countries on both sides of the Atlantic following the global economic downturn resulting from the financial crisis.
T-TIP was also initiated in part to assuage fears that the U. Negotiations started in and are uncertain. Concerns have generally focused on the unusual nature of the programs, particularly that the IMF has not generally lent to developed countries in recent decades, and that the programs provide a large amount of financing relative to the size of Greece's economy.
Generally, IMF staff had to certify that debt in a country was sustainable over the medium-term before approving a program that exceeded normal limits on the size of IMF financing referred to as "exceptional access" to IMF financing. In May , the Board changed its lending policies to allow the first Greek program to go forward, even though IMF staff could not certify that Greece's debt was sustainable in the medium term, due to concerns about potential spillover effects.
Proponents of the IMF programs in the Eurozone point out that the programs are consistent with the IMF's mandate of maintaining international monetary stability; the IMF has lent to developed countries in the past, if not recently; and that as a member of the IMF, Greece is entitled to draw on IMF resources.
They also argue that the IMF has several safeguards in place to protect IMF resources, including making the disbursement of funds conditional upon economic reforms, and that the IMF has a strong historical record of countries meeting their repayment obligations.
Proponents argue that IMF safeguards had to be changed in to allow the Greece program to go forward in order to protect international monetary stability and limit possible contagion of the crisis in Greece to the rest of Europe and the broader economy. They also argue that other large programs for Eurozone countries, including Portugal, Ireland, and Cyprus, have been successful. Concerns about IMF resources being used to "bail out" Greece and other Eurozone governments has led to legislation.
Prospective IMF loans to low-income countries are exempted from this requirement. If the IMF does approve a loan to a high- or middle-income country despite U. Additionally, in December , Congress conditioned U. In March , Rep. For example, among other objectives:. Many U. The EU is not only the largest U. Political tensions in Europe and a focus on the Greek and broader Eurozone crisis arguably has and could continue to prevent the EU from focusing more intently on these and other key U.
A struggling Greece, especially outside the Eurozone, may also present significant security challenges for both Europe and the United States. The security implications for the United States of heightened instability in Greece could be compounded by Greece's geostrategic position near the Middle East and North Africa, as well as its long-standing tensions with Turkey.
Greece, for example, is a primary entry point to Europe for a major influx of migrants from the Middle East and Africa, which has been a growing source of concern for the EU. Finally, observers highlight the potential for a Greek government that feels spurned by its fellow EU member states to seek closer ties to Russia. During his time in office, Tsipras has emphasized the importance of Greece's close economic, political, and cultural ties to Russia and has spoken out against EU sanctions on the country—though Greece has agreed to support existing sanctions.
For his part, Russian President Vladimir Putin has expressed a particular interest in boosting Russian investments in Greece's energy sector.
These challenges include the United Kingdom's vote in to leave the EU, an ongoing influx of refugees and migrants, and Russian aggression in Eastern Europe. EU members incorporated budget rules into the Stability and Growth Pact SGP they adopted in to coordinate economic policies in lieu of relying entirely on market forces. These rules were to be enforced with fines of 0. Greece was far from the only country that violated the rules. Europe is more exposed to Greek's financial problems.
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Comments 0. Top Stories. Debt jargon explained. The Greek debt crisis story in numbers. Impact of Greek austerity measures. Greece's austerity measures. This video can not be played To play this video you need to enable JavaScript in your browser. Greece emerges from eurozone bailout programme. How did this start?
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Greece bailout protesters storm ministry Greece profile. Related Topics. Greece Eurozone Greece debt crisis. Published 20 August Published 19 August
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