Greek Drama

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…)