Headlines coming out of Greece this past week were depressingly similar to those from last year, and the year before that, and so on… Yet again, the Greek government looks unable to make its debt repayments. And yet again, its creditors respond by pushing it to raise another tax, cut another pension, or sell another airport to a German conglomerate.
As usual, creditors begin to buckle by suggesting some form of indirect debt relief, like the extension of debt maturities. A tentative agreement is then reached, and all parties claim victory, only for the exact same scenario to rear its ugly head several months later.
This sad state of affairs has caused the Greek people almost ten years of suffering; a lost decade with no end in sight. The only feasible way of leaving this purgatory is for Greeks to demand their country’s departure from the single currency. It’s high time for Grexit.
This Greek drama is like a zombie. Precisely when everyone thinks it has been buried for good it rises from the grave, wreaking havoc on markets and prompting emergency meeting after emergency meeting in Brussels and Athens. At the root of these crises is a single, fundamental problem: neither of the parties involved will ever get what they want.
Let’s start with Greece’s creditors, consisting of the European Commission (EC), the International Monetary Fund (IMF), and the European Central Bank (ECB), also known as the troika.
The EC shoulders almost 80 percent of the 246 billion euros of successive bailout funding loaned to Greece since 2010. When this sum is further divided between Eurozone member states (on which the EC depends for its funds) the lion’s share (about 56 billion euros) is held by Germany, Europe’s largest economy. Having undergone painful cuts to government spending in the early 2000s, many Germans expect Greece to do the same if they wish to balance their books. They are also staunchly opposed to forgiving Greece’s debt, which would amount to subsidizing Greece’s spendthrift policies with hard-earned German taxes. This said, Germany is facing increasing pressure from highly indebted countries like France and Italy to ease its stance in order to maintain European unity.
The IMF is a Washington-based organisation representing the interests of its 189 member countries, meaning it cannot be overly lenient to the Greek government. To approve further loans to a country which many economists claim is effectively insolvent would give the impression that the Fund plays by two sets of rules: one for first world countries, and one for everyone else. Indeed, the IMF’s hard line on countries like Argentina gained it a reputation for ruthless adherence to its policies. It is for this reason that the IMF has pressured Greece’s other creditors to forgive some of its debt, thereby maintaining its solvency.
The troika member holding the smallest portion of Greek debt is the ECB. However, it arguably has the most at stake. A Greek departure from the single currency would undermine the ECB’s very existence, making it imperative to take any action within its mandate.
Next is the debtor, Greece.
Many Greeks hate the multiple bailout agreements (also called the memoranda of understanding) signed by their political leaders since 2010. In exchange for hundreds of billions of euros in loans, successive Greek governments have had to implement conditional policies prescribed by the troika. Cutting pensions, laying off government workers, hiking taxes, and selling state assets are all part of the approach demanded of Greece. To many Greeks, this represents the capitulation of their elected representatives to foreign interests. The Greek government is effectively being run from Berlin, Brussels, Frankfurt and Washington.
And yet, after five elections since the financial crisis set in, Greeks continue to elect governments in favour of maintaining the bailout agreements—although the current government initially opposed them. To many, including Greek Prime Minister Alexis Tsipras, the perceived cost of refusing the terms is too high. So they grudgingly accept the policy overhauls asked of them.
It appears that all parties involved in the Greek bailouts are committed to maintaining the integrity of the common currency, and of the EU, at any cost. The result is that every time the issue comes to a head—like this past week—it generates another short-term compromise.
But every additional compromise comes at a cost. If German voters—who head to the polls later this year—see these “compromises”, like the extension of debt maturities or the reduction of interest on amounts owed, as attempts to forgive Greek debts at their expense, they will express their anger at the ballot box.
Likewise, if Greeks see consecutive governments accept further punitive measures assigned by the troika, they might lose confidence in the power of their national institutions, potentially fuelling the rise of extreme movements like anarchists or the fascist Golden Dawn party.
The only solution satisfying both Greeks and Germans, therefore, is Greece’s departure from the common currency. Germans will no longer be required to prop up Europe’s fiscal problem child, and Greeks will no longer have to abide by foreign direction of their government.
Of course, Greece’s departure from the Eurozone or the EU (often referred to as Grexit) would be painful. Greece would likely default on its loans, and lose out on the disproportionate amount of funding it receives from Brussels. What is clear, however, is that the status quo is very likely more painful. While recovery from the Great Recession has been tepid in most of the world, it is virtually non-existent in Greece.
Greek unemployment remains at record highs, government debt is unpayable, and, perhaps most importantly, Greeks have lost all control over their ability to hire and fire their political representatives. No matter who resides in the prime minister’s palace, and no matter how many thousands of Greeks assemble in Syntagma Square to protest, the same policies devised by the same people from Berlin, Brussels, Frankfurt and Washington continue to be applied.
Greece is where western democracy started. How appropriate for Greece to also be where the restoration of democracy in the Eurozone begins. Rather than fear what might happen if they opt for Grexit, Greeks should ask themselves what will happen if they do not.