Τρίτη, 14 Ιουλίου 2015

Greek-Eurozone crisis: Problem solved?

The third bail-out agreement between Greece and its creditors has averted, for the time being, a catastrophic outcome for Greece and a deeply traumatic one for the Eurozone - a Grexit. The agreement keeps Greece in the Euro but at great cost to the country, while having important implications for the Eurozone.

First, the agreement is yet another version of "extend and pretend". More help (mainly in the form of loans) is extended by creditors, while pretending that the Greek crisis is being addressed. What is still not conceded is that Greece cannot get itself out of its current plight without debt restructuring. Economic history shows that highly indebted countries cannot move forward without significant debt write-downs of the “classic” kind Chancellor Mrs. Merkel refuses to consider. Greek debt is simply too high for it to be paid back by an economy that has lost 25% of its GDP in the last five years and keeps shrinking. Austerity will continue and Greeks will see their incomes further reduced. Unemployment is unlikely to come down once recessionary measures, like the ones agreed, are enacted.

Secondly, the radical left-wing Greek government will pretend to implement reforms it does not believe in. SYRIZA's raison d' etre has been to fight against austerity and pro-market reforms, and push for state expansion. How can its government own up to a program it has always resoundingly protested against? Already 15 SYRIZA MPs who voted for authorizing the Greek government to conclude the bail-out agreement have already committed themselves publicly to oppose legislation that will enact specific measures agreed in the bail-out. Prominent ministers in the Tsipras government have either openly opposed the third bail-out or stated that it diverges from their party's commitments. Within the SYRIZA parliamentary party, the talk is about a “fiscal coup” against a left-wing government by ultra-conservatives in Europe. This narrative will gain credence. From now on SYRIZA will inhabit an Alice-in-wonderland (paradoxical) world, further diminishing is credibility with creditors: although its government signed the bail-out agreement, its MPs will keep condemning the “coup” against their government; most parliamentarians will be voting for legislation while arguing against it! Just like citizens voted ‘no’ in the referendum but got a ‘yes’ in return, so many SYRIZA MPs will be voting ‘yes’ to bail-out legislation but will actually mean ‘no’. Strange things by the standards of an advanced democracy, but explicable in a country whose party political system has chronically showed little respect for reason, logic, and responsibility.

Thirdly, the political fallout from the third bail-out will be significant. It will be significant for Greece since it will likely lead to the split of SYRIZA and, possibly, the breakup of its coalition with the populist right-wing ANEL party. Several SYRIZA MPs will either resign or simply leave the party, costing the government its parliamentary majority. Most likely, elections will follow and an important realignment of Greek politics will take place.

Prime Minister Tsipras is still the most powerful politician in Greece and people trust him for standing up to creditors to the last moment. That his decisions in the last six months, especially in the last two weeks in which he surprised creditors with his call for a misconceived referendum, have had profoundly negative effects on the economy and led to an unprecedented closure of Greek banks, thus making the terms of the bailout agreement particularly harsh, is something that will not dramatically affect Mr. Tsipras' standing among his strongest supporters. However, within the public opinion at large, his reputation will be dented, especially after he starts defending the laws that will implement the bail-out agreement in Parliament. His humiliating compromise with creditors is likely to be the beginning of a journey towards political moderation for him. Can he pursue it to the end? Can he complete his turn towards the centre, transforming a radical left-wing to a social democratic party, when throughout his career he has been an adamant leftist? History suggests that it is possible (look at former President Lula in Brazil, for example), although it is far from a foregone conclusion. However, for Tsipras to survive politically in the medium term he has no choice but to move his party to the centre-left. Such a move will leave space for anti-austerity politicians.

Insofar as austerity is being continued and Greek misery sees no end, Tsipras’ former comrades will step in to take up the anti-austerity mantle. Since Tsipras’ strategy of fighting austerity by negotiating hard with creditors, while keeping the country in the euro, has failed, anti-austerity politicians are likely now to change their strategy. Their new approach will most probably be to directly fight Greek membership of the euro, arguing explicitly for a return to the drachma.

The third bail-out agreement will reinforce the hitherto marginal voices arguing that Greece should exit the euro of its own will. Moreover, it will strengthen nationalist sentiments, reinforcing the historical belief in Greece that, yet again, the country is a victim of ‘big powers’. It should not be surprising if such a development is couched in anti-Germanic language. If anything, the Greek suspicion of austere Germany, fanned by WWII memories, will be strengthened. The third bail-out deal will be significant for Europe too, since it has become clear that those opposing German orthodoxy will be brutally put down. The start was made in March 2013 with Cyprus being forced to accept an unprecedented bail-in. Now, with Greece following, a pattern starts becoming noticeable, namely the weaker members of the Eurozone cannot pursue their national interests except by subordinating them to Germany’s and its allies. Insofar as the Eurozone is going to look like a club run by the mighty, political tensions will intensify. The more the principle of democracy, so strongly upheld in the EU, and the strict rules governing the Eurozone collide, the more the gap in the European integration project will widen. Already for many in Europe, Greek capitulation amounts to a fiscal coup against a sovereign country. The third bail-out agreement for Greece has exposed as well as created breaches in the European edifice. If they are not repaired, creditors’ victory over Greece may have planted the seeds of future discord.

In short, expect more austerity, more unrest, half-hearted reassurances by the SYRIZA government pretending to be committed to reform, a realignment of the Greek political landscape, and further cleavages in the European project. For Greek voters, what is new this time is the end of illusions: it is increasingly being realized that if a country is determined to stay in the Eurozone, there is no alternative but to accept the largely German rules of the game. The political implications of this realization are not easy to predict. It could be that, to the extent the there-is-no-alternative doctrine is widely accepted, social unrest is contained. But it is also plausible to assume that the absence of an alternative may make people more extreme in their political choices. At any rate, one thing is certain: the third bail-out program is no mere fiscal agreement but a profoundly political, one-sided deal that is going to shape the future of Greece and the Eurozone.

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