The breakdown of negotiations between Greece and its creditors raises questions about the effectiveness of the Greek government, says UBS.
Greece’s creditors remain adamant that Greece’s left-wing government accept further austerity in order to receive €7.5 billion in financial aid, according to The Guardian.
Financial aid is needed if Greece is to repay €1.5 billion to the IMF on 30 June and avoid default, said UBS Wealth Management executive director and head of investment strategy David Sokulsky.
Mr Sokulsky explained that while €7.5 billion will help Greece meet its 30 June deadline – the country’s problems are far from over.
“Even if they do a deal this week and the markets rejoice a bit, it doesn’t mean the Greek problem has gone away, it doesn’t mean Greece can fund their future liabilities,” Mr Sokulsky said.
The Greek government still has €7 billion in liabilities due in July and €4 billion due in August, according to Mr Sokulsky.
“They don’t have the money to pay for that. We [will] just run into this situation again in the coming months, and the discussion will turn to what a third bailout will look like,” he said.
Mr Sokulsky pointed out the much-talked-about Greek crisis is a product of its current government.
“This was a politically-made recession from the new Greek government,” he said.
Mr Sokulsky pointed out that prior to the election of the Syriza party in January the Greek economy was growing at a rate of close to two per cent.
“If you have a look at the GDP profile you can clearly see the difference pre-government and post government,” he said.
The Greek economy began shrinking in early 2015 once Syriza began challenging austerity and structural reform imposed by its creditors.
The issue is that Syriza was elected at a time when social issues, such as high unemployment, were coming to a head, said Mr Sokulsky.
“The election was held when there was a high percentage of the Greek population who were out of work and probably desperate for a solution and the current government promised that solution.”
“Whether that has eventuated or not is highly questionable,” he said.
Greece’s insistence on anti-austerity increases the likelihood of a default and a Greek exit from the eurozone, Mr Sokulsky concluded.
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