Could Grexit follow Brexit?

In the summer of 2015, the EU saw one of the most turbulent times in its 60-year history.

The election of the radical-left party Syriza, and its leader Alexis Tsipras, put Greece on a collision course with its creditors – the IMF, the European Commission (EC) and the European Central Bank (ECB). The result? EU leaders had to sit over the negotiating table for more than 24 hours straight to avoid ‘Grexit’ – a Greek exit from the Eurozone. And they did.

Almost two years on, many things have changed in the Union – the refugee crisis has intensified, nationalism has significantly strengthened, and of course, the UK voted to leave the European Union.

One thing, however, has remained the same; talks between Greece and its creditors are once again on the verge of collapsing, and Grexit looms around the corner.

Although some may argue that there are more important developments taking place in Europe this year, such as the French and German elections, the importance of the Troika (EC, ECB and IMF) negotiations with Greece should not be underestimated.

Developments here have the capacity to create a renewed cycle of uncertainty and potentially lead to Grexit – a severe blow for the euro project and the EU as a whole.

In terms of the interaction with Brexit, let’s consider two very different scenarios.

In scenario one, Greece and its creditors agree on the terms of financial assistance in exchange for yet another set of harsh austerity measures. The agreement is reached before the July 2017 deadline (when Greek funds run out) and turbulence across the continent is avoided.

In this scenario, it’s unlikely the process of Brexit would be affected. If the creditors and Greece manage to agree a deal in good time, the EU would have the capacity to focus fully on the negotiations with the UK. Moreover, the EU would at least be able to ‘fake’ coherence within its 27 remaining member states, giving it a boost as and when the Brexit talks reach a deadlock.

In scenario two, Greece and the Troika fail to find an agreement forcing Greece to leave the Eurozone and, quite possibly, the European Union as well.

In this scenario, Brexit talks would be hugely affected. If the Greek talks drag into July and a crisis ensues, EU institutions and officials will have to juggle competing priorities – securing the future of Greece and negotiating a deal with the UK.

More important, however, is the ripple effect that a potential Grexit might have – the EU, wounded from losing a member of the Eurozone so soon after losing the UK as a member state, will be plunged into even greater uncertainty.

This would be compounded by the fact that Grexit, in contrast to Brexit, would not be the result of a referendum of the Greek people. The country would simply have been forced out after seven years of very harsh austerity, with most of the blame naturally shifting to the EU.

Greece would also become the first country to abandon the European single currency. Since this has never happened before, it’s hard to predict how things would unfold. But it’s likely to place huge pressure on France and Germany, just at the very point they would want to be approaching negotiations with the UK from a position of strength.

No one knows what the next six months hold for Greece, but there’s no doubt that Brexit and Grexit could become inextricably linked.

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