Political confrontation between Greece and its creditors has greatly heightened the possibility of the country exiting from the eurozone. But, at the end of the day, economics and common sense will prevail, and Greece will continue to be a member of the exclusive single-currency club.

The relationship between Greece and its creditors which has been tense since the crisis began in 2010 ago has worsened significantly in the past few months and reached a breaking point. Last Wednesday the creditors gave the country a final chance to come up with a “credible” reform program in five days or else to exit from the eurozone (Grexit).

Five years after the crisis and two bailout packages later, the cost of austerity has been high. Greek GDP has contracted by 25 per cent while the unemployment rate has soared to 25 per cent – or 50 per cent among the youth. Nominal wages have fallen by 20 per cent on average and pensions by 20 to 60 per cent. Such adjustment costs have not been seen since the Great Depression of the 1930s. No wonder anti-austerity sentiments are rising in Greece.

… Pradumna B. Rana is Associate Professor and Coordinator of the International Political Economy Programme in the Centre for Multilateralism Studies at the S. Rajaratnam School of International Studies (RSIS), Nanyang Technological University, Singapore.