capx.co — 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.
The second proposition is reality , the sacrifices required for being in a currency union with countries like Germany and the Netherlands.
Later this month, the Greek government will resume negotiations with the lenders technical team over its next bailout package. Greece is expected to 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 in 2020.
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.
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.
For SYRIZA like allthe other parties in power before them believed that 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 perceived 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.
