Greek Crisis: European political expediency will kill the Euro
Friday 19 June, 2015 was probably the day when the prevailing neo-liberal western order lost its allure and the European project along with it. Amid the chaos, the Euro, as it's presently constituted, most likely reached the beginning of the end. All this after Frankfurt's ECB effectively promoted a bank-run in a country it is bound to protect via its regulatory function.
Bizarre? Not really. The European elite – the Tweedledee and
Tweedledum of center-left and center-right parties who now govern
almost every state – simply cannot give in to Greece’s Syriza
government. The reasons are existential. If they accede to Alexis
Tsipras’ mandate, in most nations, they themselves will be
replaced by non-mainstream parties. This is the reality and
Eurocrats simply won’t countenance what they would perceive as a
surrender to “extremist” politics.
There are two elections due shortly which prove this point. In Spain, the pro-Brussels government of Mariano Rajoy’s Popular Party is under severe pressure from the fledgling Podemos party, which has soared as high as 30 percent in opinion polls this year. The left-wing populists advocate an end to austerity and even Spain’s withdrawal from NATO.
Over in Ireland, the incumbent centrist Fine Gael-Labour coalition faces a serious threat from Sinn Fein. Incidentally, the latter has invited Syriza representatives to speak at its conferences . Sinn Fein echoes Podemos’ demands to smash austerity, while also pushing for the removal of Ulster from the United Kingdom and its unification with Dublin . So enthusiastic is Sinn Fein about this idea that it fought a 30-year war - via its military wing, the IRA - against the British state. That conflict ended little more than a decade ago.
Selfishness trumps fairness
The Irish and Spanish administrations – with self-preservation in
mind – simply will not support any bailout for Greece that sees
austerity loosened for Athens but not for Madrid or Dublin. In
fact, the latter might even spook them despite the obvious
benefits to their balance sheets. Naturally, Germany’s
notoriously parsimonious Angela Merkel wholeheartedly agrees with
their stance. Faced with an increasingly bolshy Die Linke bloc in
Berlin, Merkel’s CDU also refuses to “surrender” to “populism.”
However, there is a problem here. The European elite fancy themselves as democrats. In fact, they rarely miss a chance to lecture developing countries on the continent's fringe about the topic. Think Ukraine, Serbia or Hungary . Nevertheless, their current machinations are inherently anti-democratic. The fact is that Brussels is ignoring Greek voters who delivered Tsipras a mandate to reject further economic cuts.
Meanwhile, things look increasingly negative in Greece, which has
lost one-quarter of its national output since 2007. Unemployment
currently is at 25.4 percent and the figure for the nation's
youth is an astonishing 49.8 percent. The cost in ruined hopes,
dreams and lives is immeasurable. While fiscal rectitude has
delivered tangible reform and eventual progress in Ireland (and
to a far lesser extent, Spain and Portugal) the medicine isn’t
working for Greece.
Trapped in the Euro, the normal route to IMF-driven economic salvation isn't open to Athens. That would be a cull of the public sector allied to a major currency devaluation which would inspire private sector job growth to pick up the slack. Sure, it wasn’t available to Dublin either, but Ireland has, almost uniquely in Europe, a positive demographic profile and its economy is based on foreign-direct investment in its technology sector, helped by its use of the English language. Greece has neither of these advantages.
Much blame is Greek
Instead, Greece has some significant structural problems, ignored by successive pro-EU governments. Graft is a fact of life, tax-collecting has never been a national priority and cronyism stifles development. Additionally, due to a history of martial rule and difficulties with Turkey, its military spending has been outrageously high. For instance, Greek armed forces “boast” more active personnel than the British Army. This despite the fact that Britain has around six times the population and is vastly wealthier. The Hellenic Air Force has 244 combat aircraft at its disposal, mostly expensive US-built F-16s. By comparison, Ireland has no fighter jets. However, Ireland's total GDP – with half the population – is greater than that of Greece, according to data from the IMF.
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While Greece does need to cut its cloth and reduce superfluous
spending, the EU’s treatment of the country is outrageous.
Motivated by ideology, added to a desire to entrench the centrist
status quo general cross the club, Eurocrats are blinkered.
Since Tsipras assumed power a few months ago, Brussels has insisted that Syriza impose cuts that they were elected to reverse. Never mind that the previous regime was unable to implement them anyway. Nevertheless, even if Tsipras changed tack and repudiated his campaign promises, Greece would be just as bankrupt in two years’ time as it is today – or was five years ago. An endless cycle of low growth, with no possibility for currency devaluation, would guarantee that.
Hence, the only solution for Greece is to default and exit the Euro. This course of action will be painful beyond belief in the short-term. Not to mention the fact that Brussels will actively work to dismember any signs of Greek recovery. A rapid rebound in Athens would act as a totem to other EU states trapped in low-growth (or none) scenarios.
On the other hand, if Greece had some access to cash from another source, the pressure could be alleviated. This explains why Tsipras was in St Petersburg on Friday. Russia, either with or without the new BRICS bank, is his best option for funding. However, Moscow currently faces numerous financial challenges and any aid to Greece would have to be weighed against those.
The end of the Euro?
A Greek exit would open up a can of forms for the Euro,
especially if Athens was able to access cash from Beijing or
Moscow. A multi-nation currency, without political union, was
always a harebrained notion. Worryingly for Eurocrats, the move
towards more European integration has stalled. In fact, attitudes
are now going the other way with Britain, amongst others, calling
for less of it. Italy, in particular, would watch a Grexit
closely. Buried deep in a moribund state of arrested development,
with little or no growth, Rome badly needs an alternative to the
If Greece leaves the single currency, expect to see capital flight from the periphery, especially Spain, Portugal, Italy and Ireland. Most wealthy investors, believing that these countries will be next to bow out, will transfer their cash to Germany. Others may see London as an even safer haven. Should this happen, the states mentioned would be forced to initiate capital controls. At that stage all hell would break loose.
Of course, Brussels may yet agree to another crippling austerity package with Greece, perhaps mixed with a little debt forgiveness. If this happens, the Euro should hobble on for another year or two, but Europe’s terminal decline will gather pace. Except in Germany, of course. After all, Berlin has been the big winner from this mess.
The statements, views and opinions expressed in this column are solely those of the author and do not necessarily represent those of RT.