Is Greece doomed?

S P SETH

Is Greece doomed? If so, will it take European Union (EU) with it? Regarding the first question, it is not so clear-cut. While Greece has much to lose with its exit from Europe, if unable to accept the EU diktat on its economic policy, it will also damage, and possibly unravel over a period of time, the project Europe studiously built over decades to create an interdependent Europe to exorcise the ghost of wars, like WW 1 and WW 11. On its own, Greece is a small country with a population of about 11 million. Its debt to eurozone and IMF at about $400 billion is large by the size of its economy (about 180 per cent of its GDP) but on the scale of EU it is not unmanageable. In a sense Greece is being made an example precisely because it is a small country. The eurozone, led by Germany and supported by France and others, do not want Greece’s defiance to become a contagion as some of its other member countries, like Spain, Portugal and even France and Italy down the line, would like some leeway to operate outside the strictly laid EU economic parameters.

In the case of Greece, during the last five years of a strict austerity regime, its economy has shrunk by 25 per cent. The country’s unemployment rate is around 25 per cent, with youth unemployment around 50 per cent. As things stand, there is no light at the end of the tunnel for Greek people. Faced with such utter hopelessness, they had elected a left-government led by Prime Minister Alexei Tsipras hoping that a popular mandate against relentless austerity, dictated by EU high priests and IMF, would send a clear message and provide the new government with some leverage to work out an acceptable deal on debt repayment. But the Tsipras government’s clear message against a severe austerity regime was seen as an unacceptable challenge to eurozone’s financial architecture. To be clear, the Tsipras government wasn’t trying to get out of its debt obligations. It wanted debt relief. Anybody can see that with its economy stuck in a downward spiral because of the EU austerity regime, there is no hope in hell that Greece will ever be able to pay its huge debt. Even IMF recognized at one point that Greece would need more funds and longer repayment periods to pay its debt. But the first and foremost thing for Greece to pay its debt is a growing economy, which will create a healthy revenue stream with more people in employment and more economic avenues.  So far, its bailout funds are mainly paying its recurring debts. And it continues to need new money to pay old debts. In other words, it is sinking deeper and deeper into debt and the negotiating process between the EU agencies and the Greek government was going nowhere.

Which led the Tsipras government to call a national referendum, recommending the country’s electorate to vote against the EU’s new austerity package. Having never liked Greece’s left government seemingly challenging EU’s financial architecture, the EU decided to play politics with the Greek referendum suggesting that a no-vote could result in Greece exiting Europe. While the Greeks favoured their government against EU-imposed relentless austerity, they also did not want to quit Europe. And the EU was playing on that fear hoping that the fear will trump austerity and the Tsipras government’s ‘no to austerity’ will be rejected. But, to the great disappointment of the EU power structure, the Greeks overwhelmingly—by over sixty percent---voted against the new austerity package. In the period leading to the referendum, Greece was in the midst of a scary situation with its economy virtually at a standstill with banks and markets barely functioning. The European Central Bank had suspended emergency funding for Greece’s banks after the referendum was called, adding to a sense of doom to influence the outcome of the referendum. But it did not work.

It beggars belief that the EU has let things go this far. The outcome of the referendum, favouring the Tsipras government, took things back to square one. Which is: how best to reconcile debt repayment with economic growth. The EU position remains that austerity is necessary to fix Greece’s debt-ridden economy to create conditions eventually for healthy growth. But that might take forever as the debt, as it stands, is unlikely to be paid for a long time, if ever. The continuation of an austerity regime will compound the misery of the Greek people, even if the Greek government is bludgeoned into a hard deal.

There has been a lot of finger pointing about the profligacy of the successive Greek governments since Greece joined the eurozone, starting this century. It is not entirely without foundation. But much of the punishment in terms of job losses, pension cuts and spending cuts in general is being borne by the Greek people and not the political and economic elites who screwed the system. It all happened with generous EU credits rolling at a time when the economy was supposed to go only upward until the global financial crisis hit the world in 2008 and 2009, which is still playing out. While Greece is paying a heavy price for its acts of omission and commission, it is also reasonable to ask why the lenders were on a lending spree without asking/exploring some uncomfortable questions about the credit worthiness of the receiving party, Greece in this case. The EU creditors, therefore, need to share blame and pain on this score.

Coming back to the question first raised: is Greece doomed? As earlier said, there are no clear-cut answers to this. One thing though is clear. Which is that whether Greece stays in EU or has to quit for defaulting on its debt, it is entering uncertain times. Unless its debts are significantly overhauled, both in terms of the money owed and repayment terms, the EU will continue to revisit the Greek debt crisis periodically. And that is not going to reinvigorate its economy. In other words, the Greek tragedy is likely to be an ongoing saga for a fairly long period, testing EU as a durable project.

Another worry is that the right-wing/anti-EU parties/groups in some member states are likely to get more oxygen from the Greek crisis. They favour withdrawal from EU as, in their view, it infringes national sovereignty. For instance, the social and economic costs of austerity packages forced on Portugal and Spain are still raw in these two countries. With only one currency for 19 different countries, they have to operate within a narrow band of budgetary requirements. As individual sovereign entities they might be able to use the elasticity of exchange rate by devaluing their currency, for instance, to deal with a temporary situation.

A major problem with eurozone is that it is not a political union. In the process, as and when economic control is sought to be exercised on its weaker member states, it looks more like a dictatorship of the few of its powerful members acting through an overbearing European bureaucracy. And it has the potential of revving up racist groups like Golden Dawn party in Greece, United Kingdom Independent Party (UKIP), and its nationalist and racist counterparts in France, Spain, Italy and so on. The situation, therefore, remains highly unpredictable.

Note: This article first appeared in the Daily Times.

Contact: sushilpseth@yahoo.com.au