European leaders say they want Greece to be a part of Europe but at the same time they do all the can to destabilise the Greek economy by turning off all possible lines of credit and by talking up the possibility of a Greek default. So what does Europe want from Greece?
With one crucial agreement deadline after another being missed, there seems to be no end to the continuing agony of Greece in the hands of its European partners.
The five year old game of Grexit or Not Grexit is still being played. This time more intensely than ever before, but without creating the same anxiety to the people of Greece who have heard it all many times before. They have by now, either run out of money or have moved their money out of the Greek banks.
The prospect of Grexit does not seem to alarm Greece’s European partners either. They predict or hope that Greece will soon default. European banks have reduced their exposure to Greek debt and only governments – that is taxpayers – risk losing their money. But who cares? – the political gains of humiliating a new ambitious government with an agenda of growth and fairness, would outweigh financial losses for the austerity block in Europe. And it would, at the same time, send a strong message to any other political upstarts who dare oppose the ruling establishment.
The Greek position
After three months of detailed negotiations, the lenders have been throwing back any proposals Athens has made as ‘not detailed’ or ‘not credible enough’. Or simply just because they were different to those of the previous government’s, effectively leaving Greece without much of a plan.
The Athens plans proposals do contain a certain amount of ambiguity.
Amounts of increased revenue from combating tax evasion cannot be calculated with the same accuracy as cuts in expenditure. And true, the whole of the pensions system needs to be urgently reformed, as it is now facing the same problems other countries have been dealing with for the last fifteen years. And there is a need to privatise ailing nationalised assets, such as the railways and the ports, that the Greek state, in the words of finance minister Varoufakis, is ‘unable to develop’. And yes, labour relations and trades legislation need to be reviewed and brought in line with that of the rest of western Europe; there is no argument against that from the Greek government either.
But to do all that in the space of three months? These reforms take time in consultation and planning, if they are to have a lasting effect. After all, the previous governments did not make much progress in the last five years, and were never under such pressure by Europe to get on with it – on the contrary, they gained praise and approval and many more billions of euros in new loans.
The basic problem Greece faces at the moment is that it cannot borrow on the global markets, because its €320bn debt is unpayable. No level of Greek austerity could repay it in the foreseeable future.
So, after three months of negotiations, an agreement for extending credit to the Greek economy has not yet been reached and billions of euros of debt and maturing bonds need to be repaid. The Greek government has so far managed to keep up with the payments by using all its reserves of cash and short term loans. But the European lenders, who have been over generous with their cash to the previous administration have now stopped the bailout instalments -they have not been cashed in since August 2014; they blocked access to the unused bank liquidity fund, and have made it illegal for Greek banks to increase their exposure to Greek government bonds, pushing Greece towards default.
What will please Europe?
Every statement and press leak made by the European institutions, the German finance minister, the ECB leadership and Eurogroup representatives seems to be designed to drive Greece deeper into a liquidity crisis. Even the Greek opposition, now led by the former prime minister (who retained his position as the leader of New Democracy just in case he is called back), are saying that the government should reverse its position and continue with the austerity terms the previous government had agreed but had not been able to implement.
While publicly it is claimed that no one wants to see Greece out of the euro, with their statements, Schaeuble, Draghi, Junker and co, do spread the fear of default and feed the international media with a barrage of blatantly biased information against Athens, encouraging rumours of bank runs and bankruptcy which further weakens the Greek banks.
And a Greek bankruptcy they may well get. There is a limit to how long any country can continue to pay its loan obligations without being able to borrow – let alone a country in Greece’s position.
Does Europe really want to ‘help Greece’?
The ‘austerity block’ in Europe led by Germany’s Mr Schaeuble, claim that they want to help but only in return for more austerity – further cuts in salaries and pensions and more tax increases – and are prepared to push Greece to bankruptcy to achieve it. They all expect that the Greek government will draw back from its position at the last moment and surrender unconditionally to the German demands.
In February, the draft document submitted by Athens listing reforms was rejected by the ‘helpful’ eurogroup finance ministers, because they did not approve the inclusion of the word ‘flexibility’ in the sentence
“The Greek authorities have indicated that they intend to successfully conclude the programme, taking into account the new government’s plans. In this context we intend to make best use of the existing built in flexibility in the current programme”.
An outraged Finnish government, one of the staunchest supporters of the Schaeuble hard line, chose to announce just before the last eurogroup meeting that the Finns had enough of Greece and that this Greek government would not see a cent of European money unless they implement the reforms the previous government signed for, not just legislate for them. (Ironically, it was the Finnish government that made an exit in the 19 April elections).
And before every Eurogroup meeting there is an announcement that there is not going to be an agreement with Greece. At the moment the expectation is that Greece will be left languishing unaided without any financing to repay several more billions of loans and meet the payments of pensions and salaries.
But neither the German government nor the ECB, nor anyone else come to that, have any idea how to handle a Greek default or what risks that default might bear for the single currency or the fragile world economic recovery. Only a few days ago, Mario Draghi himself admitted that a Greek default will take us all to ‘uncharted territory’.
What does Europe want?
When starting to read between the lines of statements published in the last few months, it seems that Europe wants something more than just to throw ‘the lazy Greeks out of the eurozone’.
Europe, it would appear, will not be satisfied with anything short of a ‘regime change’ – an overthrow of the ‘radical left’ government in exchange for a coalition of opposition parties under Mr Samaras, who is waiting in the wings, plotting. And that will be attempted through either a complete humiliation of the SYRIZA government, or through a bankruptcy within the euro where the government will be unable to pay pensions and salaries and will be forced to impose currency controls. The result, in either case, will be a collapse of the government and by popular demand, a ‘national salvation’ coalition government headed by Mr Samaras will return to power without the inconvenience of elections.
Herr Schaeuble and his supporters in Europe do not even try to make a secret of the fact that they would much rather have had the previous government still in power, and Mr Samaras in charge of Greece. They have publicly demonstrated their contempt for the elected members of the Greek government, though making a range of derogatory remarks about the finance minister’s lack of political experience, his dress sense and his attitude, and likening the Greek negotiating team to ‘a bunch of taxi drivers (?) asking for money’.
Should the government go back on its pre election commitments?
The main reason why the Greek voters trusted SYRIZA with the government of the country, was not so much because they had very strong feelings about shops opening on Sundays or about baby milk being sold at supermarkets (which, contrary to what Mrs Lagarde thinks, it is) but mainly because they wanted a fair taxation system, the rooting out of corruption, better employment opportunities and the end to the failed policies that hit the middle classes hard and led a large proportion of Greek people to poverty. And all the signs are, that given a chance and some time, the new government will go a long way towards keeping their pre election commitments.
The programme of austerity has not worked for Greece. While debt went up, GDP was reduced by a quarter, and unemployment and poverty reached record levels for a European country. Taxes were increased dramatically for ordinary taxpayers, while the rich and well connected carried on as normal. Not much of a success story in that.
The new government has made a good start; given the extent and depth of corruption it is understandable that it cannot possibly rooted out overnight – it permeates all levels of public life. The recovery of 1.8 million of unpaid taxes by one of Greece’s oligarchs, what the American media called ‘the first victory of the Greek state’ sent a strong message in all directions, that this government means business; and it is hoped that it is the first of many ‘victories’ to follow. And that, in the mind of the Greek voter, is vindication enough for the stance of their government.
On the other hand, it is becoming more evident that Greece’s European partners and the euro institutions are less concerned with saving Greece and more with having a Greece that does what she is told.
And if the Greek government capitulates, condemning the Greek people to unemployment, poverty and destitution for the next decade, then a different kind of question will need to be addressed: What does a nation need to do to change the direction of its government’s economic policy when they cannot do that through elections?