In perhaps the epitome of that "interest in a boring
topic" thing we've discussed, I actually find the whole Eurozone crisis to
be pretty interesting. It's probably attached to a more general interest in the
EU, and Europe itself for that matter, but the problems and negotiations that
come with having a currency union certainly bring no shortage of political
complexity. And what’s more complex than the ongoing mess that is Greece? No
doubt you’ve seen plenty of mention of it in the headlines.
To make a long story short(er): five years ago
in the midst of the big financial crisis, the struggling Greek economy was
bailed out by the so-called ‘Troika’ (comprised of the Eurozone countries, the
European Central Bank, and the International Monetary Fund) in a deal worth €240 billion, or about $320 billion.
Creditors were also forced to accept a ‘haircut’ of about €100 billion, loosing more than half the face value
on all Greek government bonds, on top of lowered interest rates and extended
maturity dates. As a
condition of this bailout, strict austerity measures were agreed upon, with
Greece essentially agreeing to slash spending and be generally less wasteful.
For a number of reasons, things are still a long way from fixed.
Tax evasion has long been a big problem, one
that European leaders and the IMF have very clearly told Greece that it needs
to address. Almost the entire country seems to share in a fierce aversion to
paying the government what they're supposed to. And, unlike in most of the West,
little stigma exists around this evasion—something that stems in part from the
centuries of Ottoman occupation. According to Aristides Hatzis, professor of
law and economics at the University of Athens, "Greeks consider taxes as
theft." As he puts it, "Normally taxes are considered the price you
have to pay for a just state, but this is not accepted in the Greek
mentality." A government can't possibly sustain itself when
employers, employees, and consumers are engaged in a culture of collective avoidance
of income and consumption taxes whenever possible, without fear of being
audited. Add to this the fact that Greece has long spent beyond its means, with
its bloated, overpaid public sector, its low retirement age, its generous
benefits, and its extensive social programs—to say nothing of massive
corruption—and it isn’t difficult to see how it ended up where it has.
More than half a decade since the 2008 crisis,
Greece has still yet to the see the signs of economic recovery that most of
Europe has—even its fellow basket cases like Spain, Portugal, and Ireland have
had some improvement. Its unemployment rate is still higher than 25%, and youth
unemployment is upwards of 50%. The forced austerity policies, though
considered fair and reasonable “tough love” by the German, are widely hated in
Greece as cruel and abusive. The rise of Syriza, the anti-austerity, anti-establishment
party that took power in January, with Marxist finance minster Yani Varoufakis,
has caused plenty of nervousness in global markets. (Its name might be enough
make some uneasy, “Syriza” being an acronym for “Coalition of the Radical
Left.”) They won’t soon be taking down the much-derided ‘Troika’ or ending
austerity or securing a large debt write-off, despite what they claimed while
campaigning, but EU exasperation may let them get further than their
predecessors.
The bailout agreement was due to expire on 28 of
February, but Greece managed to secure a four-month loan extension last week.
In return for the loans, Greece said it would commit to a list of new reforms,
including a crackdown on tax evasion, and fuel and tobacco smuggling. It also
said it would hold off on plans to implement minimum wage increases. The
European Commission has approved this agreement, but now individual states must
accept it. What happens if the deal fails?
Well, while Greece's government still has enough
to get by for a few more months, its banking system is on the brink of
collapse, especially with wealthy Greeks abandoning ship and trying to pull all
their money out of the country's banks. More than 18 billion euros have already
poured out of Greek banks since December. Failure to agree to a deal could even
lead to a Greek exit from the Eurozone--the so-called 'Grexit.' From what I've
read, Angela Merkel's camp maintains that Europe now has sufficient defenses in
place to let Greece fall out of the Euro-bloc, but at this point the potential
repercussions are enough to make both sides think twice. The Bundestag will
likely agree to the deal, as will others, but no doubt Germany’s patience is
wearing thin from all the inconsistency and posturing. Apparently Varoufakis and Schäuble, his German
counterpart, can hardly stand to be in the same room. Earlier in the week, before consensus
had been reached, Mr. Varoufakis was calling the EU's offers "absurd"
and criticizing their vague, "nebulous promises" concerning
flexibility. Immediately after the extension was signed he was back to
demanding that a chunk of the debt be written off. The intemperate tone
he and Syriza maintain won’t win any friends in the international community.
Then again, I suppose that isn’t exactly their first priority.
Frankly, Greece should never have been let into
the Eurozone to begin with; their deficit and GDP to debt ratio never met the
standards required for entry. That’s an opinion that many, including Merkel,
have made quite clear. It was a foolish oversight made possible by naïve
sentiments of Greece as the birthplace of Western civilization and democracy,
and by the intentional falsification of financial information. Greece was sick
man of Europe then and they still are. And with the stipulations of the bailout
they accepted, combined with the fact that they don’t have their own currency
that they can independently control, largely ties their hands in initiating the
sorts of policies they may want to.
This approval from the Eurozone nations may be
the first step in allowing Greece to get its act together—it gives them more
time, and staves off the threat of a default—but it certainly won’t solve the
huge economic problems facing the Mediterranean nation. Unsurprisingly, it
seems to fall a great ways short of meeting the many promises Syriza made. From
what I heard on the BBC World Service, the people asked on the streets of
Athens seemed to be withholding judgment for the time being, still hoping the
new leaders can make good and bring some much-needed relief. The Grexit has
been avoided, at least for now, but whether or not the cradle of Western
civilization is going to be back on its feet anytime soon is anyone’s guess.
(I’m not really sure how
many centuries it’s been since it was properly on its feet…)