Real fear that Grexit could be politically contagious – Sant

The EU fears that a Greek exit from the Eurozone could lead other countries to follow its suit, Labour MEP Alfred Sant said.

“The EU can financially cope with a Grexit but they very much fear the political contagion it can lead to,” Sant told a conference on the future of the Eurozone. “Mario Draghi, the European Central Bank President, considers Euro membership to be irrevocable. Indeed, there’s no institutional means through which a country can leave the Eurozone, other than by leaving the EU.

“In Brussels, it’s unacceptable to discuss the possibility of a country leaving the Eurozone, and German Chancellor Angela Merkel has said straight out that a failure for the Eurozone will signal a failure for the EU.”

Syriza stormed to Greek governance earlier this year on a pledge to revoke austerity measures. Sant described the far-left party’s success as a light to people in Portugal, Spain and Cyprus.

“These people are after jobs and better lifestyles after having suffered from austerity measures,” Sant said. “Austerity measures trigger the rise of extremist parties. Ultimately, the EU is a political project and as such requires people to vote for governments that want to remain in it.”

Sant suggested that Greece be granted a moratorium- that it stops paying its debts until its debt-to-GDP ratio reaches 120%, the level it was prior to its first bailout.

He warned that if Syriza keeps toning down its demands, it would face a huge political crisis within its own party.

“Per head, Malta was one of the highest contributors to the Greek bailout,” Sant said. “The previous government had even hoped to make a profit out of it- lending money at a low interest rate and lending it to Greece at a high interest.” 

The harsh reality, he admitted, is that there’s no way that Greece can repay all its debts. 

“The Greek economy has declined by 25% in the last five years, and its debt-to-GDP ratio has gone up from 120% to 175%,” he said.

The challenge of economic stagnation

Another great challenge for the EU, Sant said, is how to get out of its economic stagnation.

“Fiscal consolidation, or austerity, has successfully achieved fiscal prudence but at the cost of economic stagnation,” Sant said. “Although budgets have come back to balance in most European countries, their economies have remained stagnant and deflation has become part of the scenery.”

This, he pointed out, has led people to become pessimistic about their prospects, meaning that they are buying and investing less.

“The European Central Bank has long realized that deflation has become the greatest threat, which has prompted them to introduce a quantitative easing programme- pumping €60 million into the Eurozone economy each month for the next ten months by buying government bonds.”

The problem, he warned, is that the Deutsche Bundesbank is dead-set against inflation.

“However, when Germany was reunified in the 1990s, they declared that each East German mark would become equal in value to a Deutsche Mark. If that’s not quantitiative easing, then I don’t know what is.”