Economics, Politics

Greek debt crisis: A mockery of European policies

In one of her recent speeches, the youngest MP in Britain Mhairi Black referred the Labour Legend Tony Benn, who once said that in politics there are always weathercocks and signposts. Weathercocks spin incessantly, no matter what direction the wind in blowing. On the contrary, signposts are always pointing to the right direction they are meant to represent. We all talk about politics is a game of charades and in our time this has become a fait accompli. During my postgraduate year there was a lecture on the session for organisational behaviour and how one should never deviate from their true north, which are the core ethos for their very existence – their raison d’être. During recent times, no worse event demonstrated the bigotry of the political powers in today’s world, than the debacle of the Greek austerity drama and the Grexit paradigm. 

 
To the rest of the world, Europe appears to be the shining beacon of socialism, equality, culture, diversity — the land of prosperity and fairness. It was difficult to conceive that any European economy would be on the brink of disaster. I was first aware of the problem with the Greek economy in around 2000 when IOC expressed serious concerns of the ability of the Greek government to host the 2004 Athens summer Olympics. They finally did put on a great show but it was beyond possible to mask the fact that the country was struggling financially. In recent time, the state of disrepair and dilapidation of the Olympics sites around Athens are shown as evidence of Greece on the verge of bankruptcy — the state the world is much indebted to as the forerunner of modern philosophy, science and governance. The juggernaut of time has brought a state that ruled the entire known world to a penniless desperation. Beyond Greece’s penury, this begs an even more pertinent question to the rest if the world — this is happening in Europe, within the Eurozone, and how did this ever allowed to happen? 
 
The aim of this essay is not a quantitative analysis of the Greek economy and its decline, nor of the Eurozone, but an assessment of the situation from a wider subjective angle, asking more basic questions of economics and the underlying political dogma. This will also view EU in a different light, where the benevolent champion of humanism and societal excellence will appear as the autocratic Tsarist state threatening any doubters or dissidents to subjugation. To great believers in the EU and Eurozone project, including myself, this is an affair ringing a wake-up call on whether the EU has become a Frankenstein of our time, as has in recent past the likes of Al-Qaeda or ISIL. 
 
In simpleton terms, it perhaps all began in late twentieth century, when Greece joined the Eurozone and changed their currency to Euro from Drachma. This cannot be assumed that everything was impeccable before joining EU, and at the early stage this must have helped the Greek economy massively due to the reduced borrowing risk as well as exporting merchandise outside the Eurozone. The fissures started to show after introducing the Euro to Greek economy, whereby the labour costs suddenly soared making the Greek businesses less lucrative to the outside world as well as the profit margin decreased, and hence the shrinkage of the GDP. It can be imagined that in 2008, when big European economic powerhouses like Germany and France were trying to put their house in order, all excessive funding Greece have been receiving must have dried out. At this crucial juncture, Greece faced the hardest time for its economy as the jobs were lost, unemployment risen the a record high and all European finance aid stopped. As a result the government failed to pay the loan payment to the likes of IMF. It turned out that failing to pay the loan is partly Greek government’s fault as they continuously published lower trade and budget deficits than actual. The other issue was tax evasion, where the economy was badly affected. One colleague would tell me an anecdote how people leave the steel rebars out of the roof of the buildings showing it as incomplete, so they pay less tax on properties. It was at this desolate time when the Greek government had failed a number of repayments, the moral of the citizen at the rock bottom that the people of Greece chose the communist party Syriza, to take a different line of approach on governance, corruption and the European big brother dominance. At the helm of the party — a young leader Alexis Tsipras and in charge of getting the economy back on track was an economic professor at the university of Athens, Yannis Varoufakis. 
 
Syriza’s ascension to power came at a time when Greece was going to be hit by more stringent austerity measures, while it was already teetering on the edge. Syriza promised a massive shuffle up in the governance as well as reject any austerity measures that put Greek people in further misery. They tried to do as they stated, and thwart back to the lenders and the EU superpowers like Germany, and instantly became the bad boys of the EU, the cowboys playing with the harmonious European existence with their cavalier economic theory and political polarisation. Since then, the Syriza party leadership has been through enormous threats and arm-twisting, which Yannis Varoufakis quite aptly put “closed door mental waterboarding”. The Grexit as we know it, was a possible outcome of this period of contest between Syriza and the European lenders, more commonly known as troika. The Greek economy went into a state of frenzy as people withdrew money in fear of a possible exit from EU, banks ran out of money and the troika refused to issue any more money to allow liquidity in Greek economy.  Syriza, to show that they are not a conglomeration of quixotic Cowboys, and that they actually express the opinion of the Greek populace, have conducted a referendum where the Greek people said a resounding No to accepting the austerity measures proposed by the troika. The outcome only exasperated the EU leaders and they threatened Greece and Syriza with an ultimatum to accept the conditions put forth by the ECB, IMF and the European banks. This resulted in the resignation of Yannis Varoufakis and the marathon meeting by Alexis Tsipras with EU leaders, at the end of which Greece capitulated to the conditions and even sturdier austerity measures in order to stay in the EU. The dream that Syriza painted to the Greek people were nipped in the bud by the harsh reality of belonging to the European brotherhood. 
 
In short, this could explain what went on in the long standing drama that unfurled in 2015. Perhaps this allows us to look back in the past and analyse what has driven this fracas and the aftermath to Europe and Greek people. The beginning of this problem happened many years back, at the time of introducing a common currency across all European countries. In the world of economics, a struggling economy can overcome the recession by either fiscal expansion or monetary adjustments. Monetary policy measures include quantitative easing, which basically means printing more money to introduce more liquidity in the system. In order to retain the value of the Euro, ECB retains the sole right to issue more cash to any country. Had this not be the case, struggling Greek economy could have adopted the quantitative easing and infused more cash in the system. Not having this ability made ECB hold Greece random to their demands of the austerity measures. Many economists including Paul Krugman suggested that Greece would be better off exiting the EU and switch back to Drachmas, and sort the economy out. This was prevented by the complicit and protectionist nature of the European leaders, who threatened implicitly or explicitly that exiting EU, Greece will shut the door to having trade relationship with any of the member states. Some likened the Syriza going to negotiations with EU without any back up plan to playing pokers but this postulate would not stand against the fact that the leadership has tried to prevent accepting the austerity measures and had to succumb the extreme duress put on by the troika. 
 
Although the IMF and ECB have been most vociferous and unyielding to the remedial measures put together by Alexis Tsipras and Yannis Varoufakis, the real impediment came from the counterparts of these two men — the leaders and finance ministers/chancellors of various member states. This perspective on the Grexit brings to front another crisis the Europe is facing at the moment, which is lack of credible leadership across the continent. Angela Merkel and François Hollande are the most drab and dispassionate leaders one came come across. They belong to the designer suit clad-extremely vacuous-circumlocutory-monotonous army of people, who do not have any charisma or passion for doing their job, and hide behind tenuous, long-winded speeches for their lack of appreciation of any economic matters. It is astounding to realise that these leaders who had no concept of economic policies and ideas were at the forefront of the talks on economic reforms of a country! The worst example was Wolfgang Schauble, who perhaps was more concerned about what the Greek leaders wore to the meeting than the content of their negotiation offerings. Both Angela Merkel and Hollande are losing credibility to their population, let alone be respected everywhere else in Europe. Then there were the minnows David Cameron and his sidekick George Osborne, who still believes Britain has any say in how EU decisions are made, and delivered pompous speeches how they are very concerned about the Greek situation and won’t give any British taxpayers’ money to bail Greece out. Surprisingly enough, during the last stages of the negotiations, it was the smaller peripheral states that were more scathing in criticising Greek premiere and Syriza. In a way, it appeared that all European leaders weighed in unison against the Greek contingent because they chose to be different, in their appearance and in their negotiations. The mass loathing will have a component of the common notion that Greek people are lazy and want a free lunch at the expense of other EU countries sharing the burden, but the main  thorn on the leaders’ flesh was one person — Yannis Varoufakis. 
 
Since the demise of the Soviet Union, Communist economists are hard to come by, and finding one who is not corrupt or deluded, and has a strategy to practically implement them is a rarity. Yannis Varoufakis belongs to this rare category of economists and it is a rarity itself having an economist as the finance minister of a country, which is usually fulfilled by ex-bankers and finance directors and other fat cats. Varoufakis went to the negotiations from the time Syriza gained power in Athens with one argument — austerity does not work. Critics may point otherwise as the statistics shows Greece has cut down the deficit immensely during first years of austerity, but the human price paid for the same was enormous. Squeezing the people even further when the country is on the brink of disaster could only have meant one thing — the powers-to-be in Brussels did not want to know about wellbeing of Greek people, all their interest was money. Being an economist, Varoufakis could pick holes in the argument for the austerity. This has riled the cast of European leaders as they stood in the meeting red faced having their notion of Eurozone shred into pieces by a Greek economist, and he did it in his casual manner, in simple words and not hiding behind jargons. His whole persona and lifestyle of riding a bike to the parliament, arriving to negotiations in leather jackets set him stand out amongst a bunch of automatons, and they were quick to attack him about his lifestyle, his approach to negotiations as they were left clueless when he defeated them in their own game, and laid bare the ineptitude of their proposal from the charade of verbosity that these leaders often resort to. As a result, Yannis Varoufakis failed to make friends with Brussels as he was seen as a pariah, who could put the European brethren to jeopardy by not being like one of them. When the referendum results were declared, Varoufakis had to go as the European leaders won’t deal with him anymore, and within 48 hours, Syriza was forced to sign on to the austerity. It’s true that part of Syriza was not in favour of Varoufakis’ reform measures as they seemed too reactionary, but the fact cannot be denied that he stole the sleep of the European leaders during his tenure as the finance minister of the Greek government. 
 
The folly of the Eurozone became more apparent in the unified vilification of Greece especially by the smaller states. During the crisis this was more than clear that Eurozone is nothing but a German project, and the small peripheral states are just ‘tagging along’ in fear of losing the favour and hence the funding from the ECB. Speaking to a friend from Slovakia, they felt it was unfair that their country has to pay for bailing out Greece so their pensioners get €160 pensions whilst Slovakia’s pensioners only get €140. This is a fair argument, but it makes it clear that, despite sharing a common currency, the standard of life is not the same amongst the member states and this itself is the biggest fault of the EU. It is expected that by introducing monetary controls, all the countries should have same value for the Euro and the standard of living will not be a stark dissimilarity amongst the countries. With time, this means that the Eurozone will also have limited mobility within the working population for economic benefits only. However, the purchasing power of a Euro is still different by a large extent in the core members and the smaller nations who joined the currency union later on. Due to this imbalance, there is still a large amount of migrant population within EU member states only, raising concerns over radical nationalism and right wing politics. 
 
One factor greatly contributed implicitly to the ostracism of Greek government in the corridors of Brussels, but it was hardly ever brought into the fray by the media— its the elephant in the room, Syriza is a Communist outfit. Some friends suggested that this did not contribute to the Greek austerity, it cannot be denied that there is a massive animosity towards the communist parties. The history of Europe’s past will prove that more lives were lost by the expansive imperialist movements than by Communism. People often wrongly associate communism as synonymous to Stalin/Trotsky/ Khrushchev/Mao/Castro. Syriza therefore started the negotiations in the back foot, already being tarnished with the same brush. Modern day Europe, although a melting pot of breakthrough ideas, innovations, thoughts and philosophy, in certain instances like this, is still blinkered, Machiavellian. Also, it cannot be denied that troika is influenced by large multinational conglomerates, whose main ideal is to maximise wealth by punishing the working poor. Marx’s theory of class divide has never been diminished, instead the gap has got wider in recent times. The wage for the working class has increased but never at par with the inflation and media is so focussed on bottom 20% that they never reported what the top 1% doing and how their growing wealth is going unnoticed. These conglomerates, for their own interest, did not want a communist party in power and dictate terms with them. Marxist views are branded anti-trade by these big corporates and their media, and hence the egalitarian socialist aspect is lost forever. Had Syriza been a party purported to express any other political ethos, the outcome of the negotiations might well have been, if not significantly enough, different than the more austere measures Greece was subjected to. The main aim of the corporate run EU was to maintain the hard stand against Greece so Tsipras has no choice but to capitulate, and then as an aftermath, that might break Syriza into factions based in political views of the party members. 
 
As of now, the Greek debt crisis situation is finished, or that’s how the media tends to present to the general public. The liquidity is reinstated, although there is a daily withdraw limit, people have cash in hand, no more sensationalist picture of dejected pensioners sitting by the pavement — that picture is replaced by migrants breaking though the fence at Eurotunnel. However, the problem is far from over. Greece will pay off the first tranche of the loans owed to IMF, but the picture is not so rose-tinted for future payments. Will there be another layer of austerity burdened on Greek people? The ramifications of the aftermath of this debt crisis are many, but this is the most important lesson to be taken away from this experience by the world. 
 
The biggest effect this will have on Greek economy is the likelihood of another payment failure and further austerity measures. This brings back the spectre of the housing bubble in 2007-08, where people were allowed to borrow much more than what they can afford to repay. If Greece has failed to pay the loans, burdening them with further loans and more austerity will not provide enough economic rent to the people to be motivated to work. What Greece needed is a debt write-off, exactly what Greece supported for the Post-WWII Germany to adopt. Also, as seen after the 2008 recession, it’s hard to gain people’s confidence in the economy, hence all the extra Euros injected in the market will be drawn out by people who had their savings in the banks and had to wait for weeks to draw money out and they certainly would not put the money back to the back and would rather save it inside tin boxes on kitchen cupboards. To them, if Greece ever goes out of the EU, the Drachmas will be worth next to nothing, whereas Euros will retain the same high value. The Liquidity will still ensue but not immediately as expected. As for Syriza, they might suffer a slow annihilation as the more belligerent faction of the party will cause a revolt against Alexis Tsipras blaming no resilience against the European politicians. This austerity also sends a strong message to all other struggling states such as Italy, Spain, Portugal that any ideas on exiting the Eurozone will be severely castigated, and as Greece is set as an example, a bad one, there will be no recourse to any funding. Rather than helping the struggling countries and their industry, the banks will be set out to pilfer the wealth from the poorer countries to benefit the more powerful members such as Germany. 
 
The other possible consequence of the Greece debacle is far worse than all the above effects together. In recent times, Greece has already seen the rise of far right-wing politics in the form of Golden dawn. The entire Europe has seen a surge in right-wing politics and advent of newer fascist groups. Oddly enough, these parties and factions do have a lot of public backing as well, who mainly hail from the working class. Failure of Syriza to resolve the debt crisis to a more humane solution will mean further austerity and as people tend to get worse off, in order to apportion blame, they tend to pick up an enemy, and that’s how nationalist radical parties thrive. Also, if Syriza loses its credibility, there will be no mouthpiece for the left-liberal parties in Greek political environment, which is a frightening possibility. On a wider scale, by discriminating against communist parties and ideologies, the banks and other transnational organisations as well as the powerful capitalist economies are trying to create a world full of their automatons, devoid of any humanity. This will pave the path for far right parties to reach out and influence people, and gain popularity as they did in the form of Jobbik in Hungary, Marine le Pen in France, EDL and UKIP in UK, PEGIDA in Germany. It is surprising how the rise of fascist right-wing has not been met with such vehement criticism from Europe’s leaders as did Syriza. These outfits spreading hatred will gradually push the harmonious equilibrium that was achieved over years of conflicts and negotiations since WWII into a complete disarray. And that, will bring a definitive end to the EU thanks to the cataclysmic policies adopted by its leaders since the introduction of Euro. 
 
Perhaps, to draw a conclusion to this debate, the last area to be looked at is what needs to happen to avoid this downward spiral of austerity. The first requirement is an unequivocally simple solution of writing off part of the debts Greece owed. This will let the governments treat the situation as turning a fresh page and start from scratch building the country. ECB could devolve its powers so in situations like this, member states will have the ability to print money in order to maintain the liquidity. It could be argued the benefit of this, but Euro in EU has failed to bring a balance to the purchasing parity anyway. What Syriza should do is use the popularity it presently has and bring mechanisms to leave a long term legacy such as tighter taxation regulations, pay more wage at par with Western Europe. When it comes to paying next tranche of the debt, Greece should stay firm about further austerity unless that squeezes the top 1% rather than the working poor. Also, rather than being browbeaten by the European superpowers, Greece should make a back up plan to leave Eurozone. There will be heavy opposition, but after the initial setback the situation will improve. 
 
In terms of future of Europe where the member states are not in a perfectly synergistic situation, there is an audacious proposal, which can reinstate the balance and purchase power parity. Rather than struggling economies like Greece, Spain, Portugal, Ireland leaving the EU failing to accept austerity terms, it should be the economic powerhouses that will need to move out of the EU. Germany exiting alone will have made significant changes. Eurozone will be struggling without Germany but they will recuperate faster as the economies will have a degree of autonomy rather than being dragged along to the German utopia. On the other hand, leaving EU will not affect Germany as much as it would have to Greece or Spain. 
 
To conclude, the Greek debt crisis is an eye opener to the European policy makers that forcing countries to accept further stringent terms and condition will only increase the rift amongst the member states. This time will be remembered as the time when Europe failed its member states. EU is a brilliant project and it has produced excellent synergies so far, but instance such as Greek crisis will stick out like a sore finger and a constant reminder that there is a dark side of the European integration which need to be curbed at all times in order to keep the Eurozone a successful programme to bring harmony to the lives of millions of people. 
Advertisements
Standard

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s