Take all possible measures to prevent Greek crisis from expanding globally

Take all possible measures to prevent Greek crisis from expanding globally
Parliament building in Athens, Greece.
PHOTO: Reuters

All countries and organisations concerned must do whatever it takes to solve Greece's financial crisis, thereby avoiding economic turmoil originating in Europe.

The negotiations on a bailout plan between Greece and the European Union, among others, have broken off.

The EU presented a compromise plan to extend the expiry of its financial support until the end of November from the originally scheduled end of June on condition that Greece accept structural reform proposals such as tax increases and cuts in pension payments.

However, Greece suddenly announced a plan to hold a national referendum on the EU proposals on July 5. Furiously angered by the announcement, the EU has decided to cut off assistance as originally scheduled.

The rupture in talks plunged the world's stock markets into turmoil Monday, with the key Nikkei Stock Average closing down nearly 600 points Monday compared with Friday's close.

Chief Cabinet Secretary Yoshihide Suga said, "Japan will analyse the problems, too, and carefully deal with the situation."

Financial authorities of Japan, the United States and other countries need to prevent the crisis from expanding by cooperating closely with the EU and the International Monetary Fund.

The time limit for Greece's repayment of about €1.5 billion (S$2.24 billion) to the IMF comes Tuesday. There is a strong possibility that Greece will default due to a shortage of funds.

The EU has decided to discontinue the bailout plan probably because it judged that even if Greece defaults on repayment, the adverse effects on markets will be limited since lenders are mostly governments and central banks of other countries.

Avoid underestimation

But the fact remains that the Greek crisis could deal a blow to markets given the complexity of speculation by dealers. Underestimating any possible impact is something to be carefully avoided.

Of course, the best solution is for Greece to accept the EU reform proposals so the time limit for repayment can be extended.

The Greek administration of Prime Minister Alexis Tsipras announced the national referendum plan abruptly in an attempt to draw concessions from the EU on the pretext of "the public's will." The Tsipras administration also has likely concluded that acceptance of the EU proposals based on the result of the referendum would provide a good excuse for the administration to alter its anti-austerity policy.

The Greek people have not been well informed about the progress of negotiations with the EU and the possible impact a default would cause. Therefore, it would be irresponsible for the administration to saddle the people with making the final decision.

The Greek government has resorted to capital control measures, including shutting banks and setting a limit on cash withdrawals, leading to long lines of anxious people in front of ATMs.

These steps are merely stopgaps. If Greece's exit from the eurozone becomes reality, its economy will most certainly fall into a serious predicament.

To help prevent further suffering, the Greek government must sincerely explain to the people the need for concessions and move toward compromising with the EU.

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