A bluffer’s guide to the Eu­ro­zone cri­sis

The Guardian (Charlottetown) - - OPINION - Gwynne Dyer is an in­de­pen­dent jour­nal­ist whose ar­ti­cles are pub­lished in 45 coun­tries.

Po­lit­i­cal par­ties rarely com­mit sui­cide. The cur­rent cri­sis in Greece, which has led to Sun­day’s ref­er­en­dum on the terms of a deal with the Euro­pean Union, is mainly about the sur­vival of Prime Min­is­ter Alexis Tsipras’s Syriza Party. But it is also about the elec­toral fu­ture of Ger­many’s gov­ern­ing party, the Chris­tian Demo­cratic Union.

Al­most all of Tsipras’s time since Syriza was swept into power in last Jan­uary’s elec­tion has been de­voured by ne­go­ti­a­tions about Greece’s for­eign debt – at 175 per­cent of Gross Do­mes­tic Prod­uct, the high­est in the de­vel­oped world. But the ne­go­ti­a­tions did not fo­cus on what to do about that stag­ger­ing bur­den, which is so big it can never be re­paid.

Four-fifths of the money is owed to of­fi­cial Euro­pean bod­ies like the Euro­pean Cen­tral Bank, with a rel­a­tively small role for the In­ter­na­tional Mon­e­tary Fund (IMF), but the “eu­ro­zone” author­i­ties just want to kick the can down the road. Why? Be­cause 90 per­cent of the money they have lent Greece in suc­ces­sive “bail-outs” goes straight back to the Ger­man and French banks that fi­nanced Greece’s 10year party on bor­rowed money.

Greece’s econ­omy was too weak to join the euro, but the gov­ern­ment of the day man­u­fac­tured false sta­tis­tics that con­cealed that fact. Once in the euro, the Greek public and pri­vate sec­tors could bor­row money at low “Ger­man” rates – and they bor­rowed vast sums.

That money was blown in a mas­sive spend­ing spree on lux­ury goods, early re­tire­ment deals for the vot­ers, any­thing but pro­duc­tive in­vest­ment. The Greeks thought they were be­ing very clever, but then came the global fi­nan­cial cri­sis of 2008.

So Greece got the money, but to jus­tify these bail-outs to vot­ers in the richer eu­ro­zone coun­tries (who were re­ally foot­ing the bill), the Greeks had to ac­cept se­vere aus­ter­ity mea­sures. So se­vere that the Greek econ­omy has shrunk by a quar­ter in the past five years and 25 per­cent of Greeks are now un­em­ployed.

Yet dur­ing that time Greece’s debt has con­tin­ued to grow. Greece’s only hope of es­cape from per­pet­ual aus­ter­ity is a “restruc­tur­ing” of the debt that writes off as much as half of it. But Ger­many and the eu­ro­zone’s other big cred­i­tor coun­tries will not even dis­cuss that, be­cause their own taxpayers would rebel.

So five months of ne­go­ti­a­tions about Greece’s debt haven’t even touched on “restruc­tur­ing” it. They have just been about what new aus­ter­ity mea­sures Greece must ac­cept to get the last tranche of the last bail-out, which would give Athens enough money to pay the loans that are com­ing due this sum­mer.

Tsipras was elected on an anti-aus­ter­ity plat­form, and the left of his own Syriza Party would rebel if he gave in to all the de­mands for fur­ther cuts in Greek gov­ern­ment spend­ing. He came close to his “red lines” in June, but he would not cross them – and Ger­many’s Chan­cel­lor An­gela Merkel still won’t dis­cuss writ­ing off some of Greece’s debt. So in the end Tsipras walked away and called a ref­er­en­dum.

The last eu­ro­zone of­fer, which only crossed Tsipras’s red lines a lit­tle bit, is no longer even on the ta­ble, but the ref­er­en­dum on Sun­day asks Greek vot­ers if they will ac­cept it. The eu­ro­zone lead­ers say it is there­fore a vote on whether Greece wants to leave the euro (and quite likely the EU as well), but Tsipras in­sists that a ‘no’ vote will just strengthen his hand in another round of ne­go­ti­a­tions.

If the Greeks vote ‘yes’ – and they may well do so, be­cause they re­ally want to stay in the euro and the EU – then Tsipras says he will sim­ply quit and let some­body else take the blame for ac­cept­ing the terms. His own party’s unity will be in­tact, and he will be a hero to the Greek left. There would have to be a new elec­tion, and he might even win it. (A ref­er­en­dum win re­quires 51 per­cent of the vote; you can win a Greek elec­tion with 35 per­cent.)

If the Greeks vote ‘no’, Tsipras will stay in power. Maybe there would then be fur­ther ne­go­ti­a­tions, but that de­pends mainly on whether An­gela Merkel can be moved on the ques­tion of debt re­lief. That could be very costly po­lit­i­cally for her, but af­ter the talks col­lapsed both the Euro­pean Com­mis­sion and the IMF put out state­ments say­ing that writ­ing off some of Greece’s debts could be part of fu­ture ne­go­ti­a­tions.

If Tsipras doesn’t get a solid prom­ise on that af­ter win­ning a ‘no’ vote, he might end up lead­ing Greece out of the euro and the EU. That would open sev­eral new cans of worms, but we can wait un­til Sun­day be­fore we get the can-openers out.

Gwynne Dyer

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