Julius Mercy

By Julius Mercy.

How’s this for a sense of familiarity ? A fresh debt catastrophe is simmering in Europe.

Greece is urging European creditors to release funds from a bailout agreement established in 2015 so it can proceed with debt repayments, yet officials are entangled in disputes. Investors are starting to express concerns, demanding higher yields on Greek debt.

Adding to the chaos is a warning from the International Monetary Fund indicating that Greece’s debt is unmanageable and on a “dramatic” trajectory, an evaluation that prevents the fund from participating in a rescue operation.

The timing could hardly be worse. European leaders are facing numerous challenges. Upcoming elections are approaching in the Netherlands, France, and Germany. Brexit discussions are set to commence within weeks.

However, the looming threat of Greece exiting the euro warrants urgent attention. Here’s why the upcoming weeks will be critical:

The decisive moment.

Greece is running short of funds, but it must fulfill payments to creditors including the European Central Bank. Major payments are due in July.

If Greece fails to make these payments, it risks defaulting on its debts and exiting the eurozone.

Currently, its latest bailout—the third since 2010—is practically stagnant. The negotiating stances of key players are further apart than at any time since the bailout was enacted in June 2015.

There is even discord over the scale of Greece’s predicament.

“The IMF’s latest evaluation of Greece’s debt situation was unexpectedly bleak,” stated Jeroen Dijsselbloem, the Dutch finance minister who presides over meetings of chief eurozone finance officials. “It is astonishing because Greece is already performing better than that report suggests.”

I want it all.

The IMF, Greece, and creditors led by Germany all possess vastly different objectives. Here’s what each side desires:

The IMF has urged Greece to undertake more ambitious adjustments to its economy, including reforms in the labor sector. The IMF did not participate in the third bailout when initially agreed upon in 2015 because it did not consider Greece’s debt to be sustainable. It continues to assert that Greece cannot be self-sufficient without significant debt alleviation.

Greece’s primary creditors concur that Athens should enact the reforms proposed by the IMF. However, they have unequivocally dismissed any potential debt reductions, a stance reaffirmed by eurozone finance officials on Tuesday.

Greek Prime Minister Alexis Tsipras, for his part, shows no signs of concession to demands for additional reforms. He insists that debt reduction is essential before any further concessions are made.

It’s a quintessential standoff, and investors are keenly observing to see which party will give in first.

Put out the fireplace.

A crucial upcoming event is the assembly of eurozone finance ministers on February 20 — the last meeting before the onset of elections that will complicate Europe’s political landscape. Reaching a consensus for additional financial assistance for Greece will become increasingly challenging once voters begin to exercise their rights at the polls.

Following this, payments will start to become due. Greece is scheduled to pay around €1.4 billion to the ECB by late April, with another €4.1 billion due in July.

The stakes are substantial.

Greece’s unemployment rate is anticipated to remain above 21% in 2017. Investment has plummeted by over 60%, while economic output has shrunk by more than 25% since the financial crisis erupted. The nation’s social fabric is deteriorating.

If European creditors deny further aid, Greece’s debt could become unmanageable no matter how swiftly its economy recovers, as indicated by the IMF.

That would result in only one possible path — exiting the euro.

Ted Malloch, the expected choice for President Trump’s U.S. ambassador to the EU, stated on Greek television this Tuesday that the destiny of the eurozone will be determined in the next 18 months.

“Certainly there will be a Europe, but whether the eurozone persists, I believe that’s a highly pertinent question on the agenda,” he remarked. “This time, I must suggest that the likelihood is increased that Greece will indeed leave the euro.”