With Eurogroup approval for Greece’s reform plans, is Grexit now significantly less likely?

Eurogroup ministers accepted Athens’ list of proposals (Source: Getty)

Christian Schulz, senior economist at Berenberg, says Yes

Greece’s list of reforms allows the Eurozone to extend the bailout. That keeps the economy afloat, as the European Central Bank can continue funding Greek banks. Capital flight should slow, and economic sentiment and tax revenues should stabilise – averting a catastrophic funding crisis that could have triggered imminent euro exit.

Having made impossible promises to voters before the election, Alexis Tsipras’s government has now made a big U-turn, and will probably swallow the remaining bitter pills to complete the Troika review and release the funding that would get Greece to the end of June.

But despite some face-saving compromises, implementing the reforms will be a political and economic challenge for Tsipras. Greece will need a third bailout this summer. Unless the country reforms itself to generate sufficient growth and employment and restore market access, Grexit does remain a serious risk.

Ruth Lea, economic adviser to the Arbuthnot Banking Group, says No

It is little exaggeration to say that Greece has comprehensively capitulated to its creditors’ demands and that the bailout conditions are fundamentally unchanged. In the negotiations for an extension, in order to stave off a financial crisis, Syriza’s anti-austerity rhetoric has been binned.

So the grim situation for the Greek people and the Greek economy, under the austerity cosh and with an arguably overvalued exchange rate, is unchanged. Moreover, the proposed reforms do not radically change the outlook. And the economy will struggle to achieve anything like sufficiently buoyant growth to bring down appalling unemployment rates.

Politics will, of course, eventually decide Greece’s fate. But one thing is certain: kicking the can down the road and continuing with the same medicine does absolutely nothing to reduce the chances that Greece will eventually leave the Eurozone, devalue its currency, and go for growth.

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