Tragedy is etched into the Greek psyche, whether it’s the fall of
Troy, Macedonia, Thrace or Thessaly, throughout Greek history tragedy
has been a constant feature. Located on the edge Europe, Greece came to
dominate the ‘known Western world’ for a good portion of Europe’s
ancient history. In the ancient era, Greece became a maritime city-state
and invented a culture oriented towards commerce. Greece was the West’s
first advanced civilization (Athens) and produced its first empire
(ancient Macedon).
Modern Greece was central for the powers during both WW1 and WW2.
After WW2, the countries position on the edge of the Cold war between
the US and the Soviet Union led to aid, finance and arms flowing into
the country. Greece joined the EU in 1981 and subsequently joined the
Eurozone in 2001. By becoming a member of the Eurozone, Greece’s credit
rating was considered the same as Europe’s heavy weights as they were
all now part of the same union. This gave Greece access to finance that
it would otherwise not be privileged to and it also sold Bonds at low
rates of interest.
Rather than wait until it had enough money to fund its expenditure
Greece decided it would rather borrow the money today and as taxes come
in over the years it would repay the debt. Due to this a boom in the
Greek economy took place, from 2000 – 2007 Greece was the fastest
growing economy in the Eurozone as capital flooded the country.
Successive Greek governments went on spending sprees, creating in turn
many public sector jobs, new pension plans and many other social
benefits. The spending addiction included high-profile projects such as
the 2004 Athens Olympics, which went well over budget.
When the Global economic crisis exploded in 2008, this exposed the
sovereign debt crisis and the untenable Greek position. The problem
Greece faced was that it had accumulated debts of over €300 billion, the
government budget was only €91 billion from an economy which was worth
only €240 billion. Greece’s debt is more than the whole economy put
together. Greece today, does not have an economy that produces
sufficient wealth that can repay such debt. The problem with deficit
spending and debt fuelled growth is at some point the debt will have to
be repaid. Most governments do not worry about the deadline day as it
will always be in a future term with another government. For Greece that
last decades debt is now due for repayment, but the kitty is sitting
empty.
The current crisis caused three problems:
- The economic crisis caused unemployment, which led to a fall in tax
receipts, this is what Greece has wanted continues bailouts for.
- Greece has struggled to meet its debt obligations to the IMF and EU
banks, it has attempted to negotiate with them and the current impasse
is due to its creditors refusing to budge any more on repayments.
- Over 20 billion euros left the Greek banking system since December
2014. On March 18, Greek banks saw deposit outflows of between 300
million and 400 million euros — the highest in a single day. Greece
turnedto the EU for help in this area, for bailouts as cash injections.
The current crisis is due to the EU led by Germany imposing excessive
demands in return for bailout cash.
The German Straightjacket
As far as the leader of the EU is concerned, Germany, the Greeks
deserve what they are getting. As far as they are concerned, Greece lied
with its statistics to join the EU, since then it went on a spending
spree rather than make prudent decision for the countries long term
prosperity. The Greeks need to be taught a lesson for this hubris, which
the Germans plan to extract, irrespective of the pain it will cause.
For the years the EU has been providing hand-outs to Greek banks and
rescheduling the debt obligations Greece has, the Germans expect Greece
to slash its spending, completely cut welfare spending, cut the Civil
Service and make debt repayments the priority, irrespective of the pain
this would cause the average Greek. This austerity package which has
caused Greek unemployment to hover around is 26% of the workforce,
whilst over 50% of its youths under the age of 25 are unemployed.
The austerity measures imposed by Germany has led to social, economic
and political chaos. This is why the Greeks leaving the Euro and
potentially the EU, a ‘Grexit,’ is considered a real prospect as Germany
has shown no signs of compromising on its position.
The current stand-off was due to Germany wanting further cuts to
pensions in return for bailout cash. The Greek government refused as
pensioners have been pushed into poverty due to previous cuts in
pensions. The Greek government attempted to call Germany’s bluff with a
referendum, but Germany refused to change its demands.
Five years into the crisis, Greek voters have opposed the
continuation of austerity measures. With the referendum result Greece
has moved beyond negotiation to directly confronting its lenders. With
similar anti-EU parties expected to do well in upcoming elections in
Spain and France Germany and the other nations owed money by Greece
remain wedged to their position of bailouts for austerity.
Living together separately
The Eurozone crisis has proved that monetary union cannot work
without political union. Indeed with the likes of Germany and France now
defining the government budget of Greece this is a forced political
union or political union by the back door in the Eurozone. Unconstrained
Government spending by some countries in the Eurozone has undermined
the monetary union because a single monetary policy is now not
practically viable across the whole union. Consequently the European
Central Bank rate is too low for the risk of lending to Greece and too
high for lending to Germany which is why there is a big divergence
between German bond yields and Greece yields.
The Eurozone is also forcing international trade to accept that a
Euro is worth the same in Germany and Greece when that is not the
reality due to wide divergence in key economic fundamentals between the
two countries. In effect exchange rates should be lower in Greece to
reflect its economic weakness but higher in Germany due to its economic
strength.
The Eurozone crisis has been blamed on the peripheral economies like
Greece and Ireland but is a symptom of the wider crisis in capitalism.
Ultimately economically stronger and politically more powerful economies
will dominate the Eurozone parasitically exploiting the weaker members.
Germany and France will dominate the likes of Greece controlling all
her national interests or they will abandon her rather than allow the
weakest states to weaken the Eurozone, the Union or its most powerful
states.
Conclusions
So what lies ahead for Greece? The Greeks for the moment want to end
austerity but want to remain with the EU. A ‘grexit’ it would seem is
not something the Greeks are interested in, as they see their future
within the EU, not outside. But remaining with the EU will be extremely
painful for Greece as France and Germany will extract numerous
concessions in order to teach it a lesion and send a signal to other
indebted EU nations.
The EU was meant to unite the continent and lead to prosperity. With
the continents history of wars, uniting the economies of the continent
was meant to mend Europe’s bloody history. But we have seen with the
Greek debacle that the whole continent views the Greeks as different to
them, and quite possibly even a future without them. (Adnan Khan)
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