Greece Finally Accepts Economic Reform Is Required

First Published: 2015-11-21

The focus of the world’s media on the distressing scenes of thousands of desperate illegal immigrants making their way from Africa and the Middle East has distracted attention from the other great concern still facing the European Union (EU) – the Greek debt crisis.

Today, with the continuing flow of huge numbers of migrants from North Africa and from Syria, Iraq and Afghanistan crossing the Mediterranean or from Turkey to Greece and overland to Hungary, the threat to the EU is deepening following the temporary reinstatement of border controls among the Schengen zone countries. There are growing fears that this, together with disagreement among EU member states about mandatory quotas of migrants to be accepted by each, has begun to put pressure on the very existence of the Union.

Only now, after Greece’s General Election on September 20, is the country’s indebtedness within the Eurozone back in the spotlight.

The difference now is that the latest financial assistance package to Greece from the so-called troika – the European Commission, the European Central Bank and the International Monetary Fund – has been accepted by the re-elected Greek government.

The sitting prime minister, Alexis Tsipras, whose left-wing Syriza party first won power in January this year, went to the country again to seek a new mandate after losing his parliamentary majority. This was Greece’s fourth parliamentary election and sixth government  since 2009; but, despite a low turnout of voters and having to invite the right-wing Independent Greeks party to join Syriza in a coalition, he is hoping for political stability during a four-year term.

Mr. Tsipras has said that he accepts the third bailout (there were two such earlier packages in 2010 and 2012), of 86 billion euros ($96.5 billion) which have been made available in return for an extensive programme of austerity measures. He had earlier opposed the spending cuts and tax hikes demanded by EU creditors, as had the Greek people in a referendum during the summer.

But he has now argued that, in light of bank closures and imposition of capital controls, without the latest bailout Greece faces bankruptcy and a disastrous exit from the European single currency – and it is clear that, given their chequered political past, a majority of Greeks do not want to leave the euro or the EU.

In order to maintain the status quo there appears to be growing acceptance by the Greeks themselves that, in the face of a bloated public sector and tax avoidance together with a generally unsustainable level of spending and debt which was facilitated by Eurozone membership, widespread economic reform is necessary.

Specifically, the new government is required to draft a 2016 state budget, reorganize an overly generous pension system, raise taxes, privatize public facilities, merge social security funds and oversee a bank recapitalization programme – and all this while being closely monitored and controlled by Brussels with a monopoly over policy-making powers in Athens to the extent that the cynics and critics maintain that the Germans, in particular, have taken over the economic management of the nation.

Meanwhile, it has become clear that Germany will not agree to any more bailouts. But the IMF believes that some form of debt relief or debt write-off is essential if the austerity measures demanded by Greece’s creditors are not to result in a fall in national output and permanent economic depression. For his part, Mr.Tsipras has announced that while embarking on the agreed austerity measures he will also continue to seek debt relief.

For Europe as a whole it is good news that the new Greek government will carry out the necessary austerity measures. The damaging repercussions of a Greek exit or expulsion from the Eurozone  — or, indeed, from the EU itself – could lead  to the unravelling of the whole European project.

Opinion is divided between those fed up with the notion of the richer EU countries having to bail out Greeks who have overspent and mismanaged their economy and those others who sympathize with Greece because its economy should not be in a monetary union with the stronger economies of nations like Germany and France when it did not anyway satisfy the convergence criteria required to join the Eurozone in the first place.

There are also those sceptics who consider that the Eurozone is a flawed concept because of the huge disparities between its members’ economies which cannot operate with the same interest rates and exchange rates.

In an article in Britain’s Daily Telegraph in July, former British Foreign Secretary, William Hague, commented that Greece had indulged in a reckless level of spending after joining the Eurozone.  Its economy was not suited to such membership because of the huge differences in its system of manufacturing and enterprise culture and of its generally poor economic performance so that it could not do business with the same interest rates as, for example, Germany.

Economists also argue that a common currency arrangement cannot work without some sort of banking union to allow financial liabilities to be shared in order that deprived areas can be supported by more prosperous ones. They maintain that the only hope for the survival of the euro in the long-term is to impose greater centralization and restrictions on the fiscal independence of its nation states because without that the Eurozone is little more than a glorified fixed exchange rate system. This could be crucial for the future of the EU, since in the words of German Chancellor, Angela Merkel, “If the euro fails, Europe fails”.

Eurosceptics see all this as a modern Greek drama unfolding where a small country, the birthplace of democracy, is being bullied into an unacceptable level of austerity imposed by blinkered politicians with economic power, together with heartless bureaucrats, in order to maintain an artificial single currency in the name of European unity. What is more, Greece is faced with a major surge of illegal migrants – now landing on the island of Lesbos, not far from Turkey’s coastline, as well as Kos — and with having to handle them, at a time of economic difficulty, in cooperation with other EU countries.

These eurosceptics also maintain that deluded europhiles thought wrongly that forcing a common currency on 19 disparate countries of varying sizes and economic performance would bring about peace, friendship and prosperity.

Establishing the Eurozone was, of course, done in good faith and with the right intentions and it was seen as an essential step leading to a federal European super state. The European ambitions of the founding fathers after the Second World War have been partially met insofar as conflict between France and Germany has been avoided. But attempts at building wider unity have met with only limited success and have resulted in certain cases in chaos rather than harmony.

The Greek situation has produced the sort of alienation and disorder which the European project was designed to avoid.  As the critics say, this is the crippling of an economy, which should never have been part of the Eurozone, at the cost of the German taxpayer and with EU officials taking over the economic management of a country which, in effect, is no longer self-governing.

This stark reality is not what was envisaged on the journey to European unity. As long as Greece remains part of the Eurozone under its existing terms and conditions, the country has no option but to carry out the agreed austerity reforms. But some form of debt relief seems to be a prerequisite for national economic rehabilitation, and there is no sign that Greece’s EU partners are prepared to agree to that.

Clearly, the Greeks need to tighten their economic belt, but will a left-wing Syriza government be able to stick to such a requirement and balance that against Mr. Tsipras’ commitment to ‘lift our country’s pride and maintain our dignity”?

With so many variables, few would dare to predict the outcome of this ongoing saga.

Nassau, 22 September, 2015

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