Greece’s Economic Agony Will Go On and On

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Greece’s government debt crisis has always been about two mutually exclusive propositions.

First is the Greek people’s attachment, much of it sentimental, to eurozone membership, regardless of its economic sense. This derives from a feeling that Greece is the ur-European nation, the “mother of all democracies”, as French President Valery Giscard d’Estaing memorably said in the late 1970s after the country unshackled itself from military rule and was preparing its way for entry into the European Economic Community.

Never mind that Greece’s populist political culture has more in common with Venezuela than Sweden: nothing can be truly European, this chauvinist thinking goes, if Greece isn’t in it. That is why, even at the direst points of the debt crisis, public opinion polls have consistently shown a majority of Greeks supporting continued use of the common currency.

The second proposition is reality – namely, the fiscal standards required for being in a currency union with countries like Germany and the Netherlands. This is something that Greeks have been loath to accept.

Over the last seven years, whenever popular anger in Greece over the conditions attached to its bailouts has come up hard against reality, reality has always won.

Later this month, the Greek government will resume negotiations with eurozone officials over its next bailout package. Midway through its third bailout programme (worth €86 billion), and after months of wrangling, it appears that Greece will reach an agreement with creditors to receive another tranche of cash – necessary to make debt repayments due in late July and stave off the possibility of default.

As part of this, Athens has already agreed to cut pensions by 1 per cent of GDP in 2019, and to increase tax revenues (via broadening of the tax base) by 1 per cent of GDP the year following.

Keep in mind that these reforms are being implemented by the far-Left Syriza government, which campaigned on the promise that Greeks could stay in the eurozone and forgo austerity – in other words, have their baklava and eat it.

When it came to power in January 2015, Syriza portrayed Greece’s two mainstream political parties, the social democratic PASOK and the centre-right New Democracy, as sell-outs for having agreed to the creditors’ bailout terms. In the process, they ended more than three decades of political duopoly.

Yet once in power, the party has ended up following the very same path of fiscal austerity its leaders had so passionately derided.

Months after assuming control of government, as the country approached bankruptcy, Syriza waged a successful referendum campaign rejecting the third (and current) bailout agreement. An overwhelming 61 per cent of Greeks heeded Prime Minister Alexis Tsiprias’s nostalgic cry of “Oxi!” (No).

Yet just a week later, facing a possible default and forcible departure from the eurozone, that same government ended up accepting a bailout package even more stringent than the one rejected by its own voters.

Tsipras’s acceptance of the bailout did lead some on the left flank of Syriza to split off and form their own, anti-euro party. In so doing, they took their argument – continued austerity is worse than Grexit – to its logical conclusion.

But these rebels represented only a small minority of Syriza, and two years later, Tsipras remains in control.

This latest round of negotiations looks like it will follow much the same script as negotiations past. Syriza will publicly complain about labour market reforms and privatisations, but end up accepting them. For staying in the euro is what the broad majority of Greeks want.

There’s also the not-insignificant fact that Greece has few sympathisers left on the other side of the negotiating table.

When he was president of the European Parliament, Germany’s Martin Schulz was an advocate of greater leniency towards Athens. But now that he’s the Social Democratic Party candidate for Chancellor, he too is talking tough on Greece. He is now broadly in favour of Angela Merkel’s austerity policies, demonstrating that the prescription of endless bailouts without reform does not hold much appeal even among left-leaning voters in Europe’s largest economy.

The Greek desire to stay within the eurozone, combined with the fact that Athens’s creditors ultimately have more leverage, has lent an element of kabuki theatre to the entire sovereign debt saga. Because both sides know that Greece, even under a radical Left-wing government, will ultimately accept bailout terms, there is always a great deal of drama and hand-wringing and last-minute tension. But a deal is always agreed – thereby saving the country from immediate disaster, but prolonging its economic agony.

Perhaps to compensate for these ritual humiliations, Greece engages in perpetual bouts of symbolic resistance. Two years ago, it was the referendum rejecting creditor bailout terms that resulted in even more stringent conditions.

The latest spectacle is the shameful legal persecution of Andreas Georgiou, the country’s first independent head of statistics, who faithfully reported how previous Greek governments had fudged deficit figures and is now being derided by his countrymen as a traitor for having done so.

Georgiou, sadly, is just the most prominent victim of Greece’s inability to reconcile its sense of entitlement with reality.

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