Today in New Delhi, India
May 20, 2019-Monday
New Delhi
  • Humidity
  • Wind

Euro curtain falls on Greek drama, but flaws in EU remain unsolved

Greece's six-month revolt against Brussels ends in defeat. But the flaws in the European Union behind the crisis remain unsolved.

world Updated: Jul 12, 2015 15:23 IST
Pramit Pal Chaudhuri
Pramit Pal Chaudhuri
Hindustan Times
Greek Crisis,Greece,Greek Gdp
Greek Prime Minister Alexis Tsipras addresses an anti-austerity rally in Athens on July 3, 2015. Tsipras urged voters to ignore European scaremongering and vote 'No' for the July 5 referendum. (AFP Photo)

A Greek drama synopsis: In 2009 Greece admits it has lied about its government's finances - and asks the Eurozone governments for a bailouts. Then begins a pattern: the EU (minus non-euro using countries) provides a bailout package of loans, the Greek government calls for elections and, afterwards, the Greek parliament reluctantly votes an austerity package.

This goes on until the time for the third bailout. By then about one of three Greeks is out of a job and the debt is up to 175% of the GDP. In January this year the Greeks, fed up with all this slash and burn, vote in a coalition government of radical leftists and extreme rightwingers led by a former student leader, Alexis Tsipras.

Then the talks begin for the third bailout. Things go nuts. Tsipras says Cut the Debt. Brussels says Cut your Flab. Tsipras says No. Brussels says then No Bailout. Tsipras says No louder. Greeks starts to Go Bust. Tsipras calls for Greeks to vote No. Greeks vote No. Brussels says No Bailout and now No Euro either. Tsipras then says Yes. And then Brussels says Yes.

Mind you, a lot of European parliaments have to vote Yes as well so this could go on for some more weeks.

Read:Greece crisis: Euro zone demands more, delays decision on aid

During this time, the Greek economy contracts several percentage points, the world finds the new Mediterranean diet is 60 euros a day and that if a country defaults on an IMF loan its citizens can no longer download iTunes. Greece verges on becoming the barter economy envisaged by Karl Marx, the Greeks blowing their savings (which they fear will be seized to cover government expenditure) to buy washing machines and necklaces. Greek wars for independence have tended to end badly. This latest rebellion has been par for the course.

Leftwing ideologues have been disappointed. Tsipras has ultimately accepted the same austerity package that the EU had offered him last weekend. The only difference is that his people have been more traumatised by the past five days of chaos then even the past five years of austerity. This is all less surprising when one looked beyond the pictures of weeping Greek pensioners and at what was happening in the other parts of the EU.

The European Central Bank had built a bond wall of billions of euros to prepare for a Greek exit, ensuring Athens had no leverage on that front. Tsipras's own antics had meant it was politically impossible for Angela Merkel, let alone creditor countries like Finland and The Netherlands, to sell a debt write-off to their own publics. He usefully infuriated China by re-nationalising Piraeus port just after Beijing had refurbished it at great cost.

Then there was the issue of other anti-austerity movements in Europe. If Tsipras succeeded, then Syriza-like movements in Spain, Portugal and Italy would receive a fillip. At this point, the Eurozone would have had a Mason-Dixon line between its creditor and debtor states. This time, the North would have seceded from the union.

Disunited states
Ultimately, it was never about neoliberalism, people power or other phrases of little relevance. This was about the flawed political economy of the Eurozone.

Let's understand how other federal economies handle a local recession. In India, the east has traditionally been in worse economic condition than the south and west states. Like Greece within the Eurozone, a Bihar does not have a separate currency to devalue and exports its way back to growth. The Bihar economy gets compensated by the rest of India: its people migrate to other states for work and the state receives more handouts from New Delhi (the poorer one's population, the more subsidies it should get).

The political side of this is nationalism. Other parts of India don't complain when Bihar gets yet another "special package" in the budget. This is the price of keeping the country together. A similar, more efficient transfer takes place among the states of the United States.

European labour finds it difficult to cross borders. Language is an issue. A Greek medical certificate is treated with suspicion in Great Britain. National unions don't care much for migrants.

European welfare programmes are largely national. In a time of trouble, welfare payments help move funds from poorer to richer parts. Not so in the EU. In theory, if the EU creditor states had agreed to slash the debt of Greece that would have constituted an intra-union welfare payment. But that runs into the political problem of the EU: it doesn't have a sense of nationalism.

Brussels boasts that it is a post-nationalist entity. A Dutch or Finn is not happy when asked why he or she should send their tax euros to indebted Greeks or Portuguese. This means a German chancellor, let alone a Lithuanian president, will find almost no domestic public backing for waiving the debts of far-off European countries.

The example of the United States waiving the debts of wartime Europe also won't work. Washington was motivated by the Cold War. Such strategic thinking is alien to the EU - it doesn't even have a common foreign policy.

When the Eurozone was created, many warned against having a single monetary policy but individual fiscal policies. It meant than when things got tough, poorer regions would be really in a hole. Slowdowns would become recessions. Recessions into depressions. Ask the Greeks, they have first-hand experience.

The Greek crisis has at least led to a recognition within the EU that it needs to be more economically merged. The euro is not enough. Banking union, some sort of fiscal combination and so on are now on the cards. Guy Verhofstadt, a Belgian parliamentarian whose anti-Tsipras speech went viral, later tweeted what the real issue was: "Greece will have to deliver, but Europe as well! By creating a treasury and debt management system for a sustainable solution for all." He even called for political union.

The truth is Tsipras is almost reasonable compared to the anti-establishment political figures rising all across Europe, like Nigel Farage or Marie Le Pen. The Greek leaders at least wants the EU to survive. The others want it to be dismembered. With even Germany's economy heading for less than 2% growth over the coming decade, Europe will struggle to find the means to tackle issues of which the Greek crisis was just a symptom.

Greek crisis countdown

2010: First Greek bailout of 110 billion Euro in May. Seven months later, Greece imposes austerity budget.

2011: Greek sovereign debt restructured, imposing 50% loss on private creditors. Greek government resigns.

2012: After second Greek bailout, Greece approves second austerity budget. Coalition government of 3 major parties formed post-polls.

2013: In September, Greek unemployment reaches lowest point of nearly 28%.

2014: In March, Greek GDP, having fallen 27.4% over five years, has first quarter of growth.

2015: Left-right coalition govt formed; referendum rejects bailout conditions. Greece faces bankruptcy; bailout conditions accepted.

Read:Greek PM Tsipras seeks party backing to avoid financial meltdown

A speech by a wise Greek

Greece's parliament approves PM Tsipras bailout reform plan

First Published: Jul 12, 2015 11:15 IST