Throughout the Greek crisis, policymakers have acted on the assumption that Greece’s best chance at sustainable growth is through the conditionality and discipline of an IMF-EU adjustment program. Already, the desire to stay in the eurozone and receive the promised rescue package of at least €86 billion has led to significant legislative measures, and the ESM and IMF programs under negotiation will be comprehensive in the scope of their structural reforms. In contrast, “Grexit” would be chaotic, and at least initially, make it difficult for any government to reach consensus on strong policies needed to restore durable growth. In that environment, the boost to growth from devaluation could prove short-lived.
The Greek parliament last night passed the first package of measures required by the government’s agreement with European governments reached over the weekend, winning 229 of 300 votes in the parliament. There were a large number of Syriza defections (39) that would appear at minimum to require a cabinet reshuffling. Some local analysts predict the government could fall, though most expect that if that happened Prime Minister Tsipras would reemerge as prime minister in a new coalition government.