Greece – Navigating between Scylla and Charybdis: Crisis update, a talk at NYUAD

After the election in January, the people of Greece ushered a new government with the mandate to put an end to the humanitarian crisis that was the result of the economic meltdown and the imposition of an austerity program drafted by EU institutions, the IMF, and the ECB to aid recovery.

By now, we all have heard about Greece’s bankruptcy, the unbridled debt which had been building but was revealed to all after the Global Economic banking crisis of 2008. Greece, of course, is not the only debt-ridden country in the Eurozone. Spain, Portugal, Ireland, Italy are part of the same club with larger economies and larger populations.

Greece was problematic enough, small enough, and fragile enough to serve as a case study for unprecedented financial transfers between EU member states. These transfers were not part of the EU budget for structural reforms and agricultural support. These were transfers to save one particular member of the eurozone that was about to default. Billions in new loans were given to Greece and along with a haircut for bond holders and a stringent austerity program, the hope was that the country would be able to stand on its feet.

To deal with the debt crisis across much of the eurozone, the EU created in 2010 the European Stability Mechanism for the countries in the euro area. The ESM issues debt instruments in order to finance loans and other forms of financial assistance to euro area Member States. The ESM has provided financial assistance to Spain for the recapitalization of its financial sector, and is providing financial assistance to Cyprus, which is implementing a macroeconomic adjustment program.

On 2 May 2010, the Eurozone countries, the European Central Bank (ECB) and the International Monetary Fund (IMF),   later nicknamed the Troika,  responded to Greece’s predicament by launching a €110 billion bailout loan to rescue Greece from sovereign default and cover its financial needs throughout May 2010 until June 2013, conditional on implementation of austerity measures, structural reforms and privatization of government assets.

A year later, a worsened recession along with a delayed implementation by the Greek government of the agreed conditions in the bailout program revealed the need for Greece to receive a second bailout worth €130 billion (now also including a bank recapitalization package worth €48bn), while all private creditors holding Greek government bonds were required at the same time to sign a deal accepting extended maturities, lower interest rates, and a 53.5% face value loss. The second bailout program was finally ratified by all parties in February 2012, and by effect extended the first program, meaning a total of €240 billion were to be transferred at regular tranches throughout the period from May 2010 until December 2014.

Due to a worsened recession and continued delay of implementation of the conditions in the bailout program, the Troika accepted in December 2012 to provide Greece with a last round of significant debt relief measures, while IMF extended its support with an extra €8.2bn of loans to be transferred during the period from January 2015 until March 2016.

In the years since the money was given, unemployment has remained at a gruesome 30% and more than 50% among the youth, the country has experienced an unprecedented wave of taxation, a recession equal to that of the great depression, a brain drain but not much progress on the growth and reform front. For the past two years, the Greek economy and the Greek people have been experiencing a slow death leaving them pessimistic about future prospects and with all savings gone, more vulnerable to a worsening of conditions as the recession continued on.

There have been countless articles written about the why this is so.

The Euro was never designed properly to begin with. Countries cannot control their own monetary policy and cannot devaluate currency in crisis situations such as these.

Greece was plagued by corruption both in the public and private sector, rampant tax evasion, and remained at the mercy of an oligopoly of interests that strangled economic diversification.

An inflated public sector and major bonuses for public employees and early pensions and stipends further complicated the picture.

As the story unfolded, Greeks also got labeled as lazy, underachievers who wanted to continue living at high standards at the expense of other smaller and newer members of the Union, or the all powerful economic powerhouses who believed that they had the monopoly on a successful economic recipe.

Half truths are always appealing because they do contain elements of truth. Yes, it is true that Greeks themselves (their government, their people, their economic leaders at different degrees) were to blame for much of what happened. It is also true that until 2008, when the reckless banking practices led to a near collapse of the world financial system, credit was free flowing and questions were only raised later if at all. It is furthermore true that it was the nation states through their taxpayers’ money that rescued the banks because they were too big to fail though it doesn’t seem that those responsible have been punished for throwing the international economy in a tailspin.

Today what may be valuable is to focus on the here and now. Here at NYUAD we like to ask wider questions. So instead of just going over the math on how Greece can pay back its creditors, let’s step back and see how the election of a young, vibrant left wing prime minister in Greece has thrown the country between Scylla and Charybdis and the European Union into more turmoil than merely economic.

There are some interesting facts to note before we see the new picture.

First of all, SYRIZA was a party of 5 percent- if that – just a few years back. It occupied a more radical but pro-European space in the political specter. How is it then, that this small left wing party rose to win the election in January and would gain close to 50% of the vote if new elections were held today?

SYRIZA managed to move itself into the mainstream. This shouldn’t be surprising because the left in Europe is not considered the fringe. It is not considered a threat. At least it hadn’t been, not until now.

Why then was it that so many EU member state leaders spoke out against Tsipras during the election campaign?

Why did they intervene in the democratic process?

First of all, they knew that the new government was going to demand a re-examination of the agreements. It was clear that though SYRIZA had not threatened to quit the euro, they did insist that Greece was being strangled by the impossible austerity measures, that there was an ongoing humanitarian crisis on the ground, that the country had not returned to growth. They stressed that there had been more talk of reforms than actual reforms, that Greece would never be able to repay its debt under these conditions and that the country would sink deeper and deeper into poverty if it took the business as usual approach.

The member states, especially the more powerful ones headed by Germany, were adamantly opposed to any new discussion and insisted that the agreements signed by previous governments were legally binding for the new government as well.

The pressure was on. For us in Greece, it was a given that the previous government coalition would have never survived the polls. The situation was too dire, their government plan too predictable and firmly attached to the status quo, to allow for any hope of change. They asked for the vote by posing a dilemma: it was either them in charge or chaos.

In politics of course one knows that you cannot play that card too often because it becomes an empty threat and people can be scared for only some time. If they have nothing left to lose, they opt for hope or for a chance at a fresh start.

During the campaign, SYRIZA showed optimism and seriousness. Granted they are a party of factions and groups and one wonders how they can all stay under the same roof, but this has always been the case for large European parties who house different levels of conservative, progressive, nationalists and radicals under their respective umbrellas.

SYRIZA won, formed a coalition government with a newer right leaning party and got to work. First Greece had a new Prime Minister who at 38 looked fresh, genuine and calm as a cucumber. The man did not flinch under all the pressure. At least on the surface. He held his own, seemed prepared for all the attacks and difficulties that ensued, as the systemic forces rose to eat him up.

Then there was this uncanny, unknown to most, interesting figure of Economic Professor Yanis Varoufakis whose style you may or may not like, but his reasoning, confidence, expertise, dynamism and thorough knowledge of English (the world’s lingua franca) made him the media’s favorite character – extolling him, criticizing him, even using him as a punching bag for their analyses that went beyond the report of the news.

For weeks now, with the existing austerity program ending at the end of the month, the new government faced unprecedented hostility and pressure. It was a game like no other. The attacks were vitriolic. They not only pressured Greece to succumb to the conditions but even when asking for a change in tone in the wording of these agreements, they were publicly mocked and brushed aside by those who the world media were listening to.

One day things were desperate, the next day things calmed down. The players involved logged in many airplane miles, and worked ceaselessly on the technical elements for a new interim, bridge agreement.

While this went on, world bets were raging.

Was Greece going to default?

Would there be a Grexit?

Much ink, radio and television time has been allocated to these issues. Of course, the drama made the markets nervous, bullish, sluggish, and so on and so forth. Day after day, people were not sure if they should leave their money in the bank or take it out. What would you do if you thought the world was collapsing around you?

Friday night a fragile agreement was reached, in principal. Greece lived to fight another day, until Monday that is, when the government now needs to submit all the technical data for the reforms they want to implement and which the EU and other partner institutions need to evaluate for the agreement to truly be implemented and honored.

We are still in the thick of it to predict the outcome. The waters are still churning, the boat is still crashing on the rocks and many mates are going to their death. But… still they forge on.

Was this a victory for SYRIZA?

Was it a victory for Greece?

Depends on your vantage point but it was a mixed bag.

More importantly, however, what does this episode mean for the Union and why is this chapter of the book of Europe very troubling?

When did European Leaders, for instance, begin to take such a vocal part in the national elections of other member states?

How can a government that believes there may be another road to growth and social cohesion, be able to put forth these ideas and implement them without being allowed to discuss them or re-evaluate an ongoing program? Is the only economic mantra now the conservative one?

Why have politicians allowed media pressures, market pressures and constituent pressures to cause knee jerk reactions to issues that are not so straight forward?

Has the change of political guard in Greece made other EU leaders begin to look obsolete?

What is Europe’s vision today? Why should anyone care about being a member of the Union when it has once again become a playing field for national rivalries?

What kind of leadership will give Europe its financial stability and moral credibility as global challenges grow especially with climate change and issues of immigration and recession pushing publics into the embrace of the far right?

The member states of Europe are now suffering from Eurozone politics fatigue. And while the economics ministers play tough, the publics are worried that their head will be the next on the chopping block. They may be angry at Greece, but they know that if Greece falls, they may be next in line for not only a shock treatment but also for speculation and attacks that will do more damage to their economy than their own mismanagement has.

People once believed in the European project but more and more are becoming skeptical and see Europe as reactionary, conservative, unfriendly, artiriosclerotic, and inflexible. Not only that but there is no clear vision, no challenge beyond the logistical management of unpleasant economic realities which will be with the world economy for years to come. Europe has forgotten its strengths and has rekindled all its weaknesses.

If Greece escapes these troubled waters, it should look within for a fresh concrete vision. That is what will save the country and the people, a positive road forward not one of death through a thousand cuts and lingering every day despair.

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