The Greek Tragedy
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.
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.