Greece’s final countdown

Tsipras has to date played the card that the impositions of the so-called ‘troika’ run counter to the spirit of democracy that his country ‘invented’ in antiquity. 

Cartoon by Mark Scicluna
Cartoon by Mark Scicluna

The Greek debt crisis is now facing its final countdown, leaving both the crippled country and the eurozone to face a highly uncertain future.

Greek Prime Minister Alexis Tsipras is now committed to a referendum on Sunday on whether to accept the terms and conditions imposed by Greece’s creditors, according to principles hammered out by the International Monetary Fund. The referendum itself could go either way, with both ‘Yes’ and ‘No’ scenarios appearing increasingly unclear. 

Tsipras has to date played the card that the impositions of the so-called ‘troika’ (the European Commission, the European Central Bank, and the International Monetary Fund) run counter to the spirit of democracy that his country ‘invented’ in antiquity. 

His only bargaining chip has been a large majority at last January’s general election, which his Syriza party won on the promise of an end to austerity. Even Sunday’s referendum can be seen as an attempt to pit his country’s debt repayment obligations against the concept of democracy itself. 

Clearly, this strategy has not worked to placate Greece’s creditors, who have so far stood firm on their insistence on economic reforms – including tax hikes and across-the-board government spending cuts – as collateral for a 7.2 billion euro bail-out.

Meanwhile, protracted negotiations – so far deadlocked – and several deadlines have raised doubts whether this saga is more about power and control, rather than money and economics.

From the outside, it appears as though both sides in the impasse are clinging to positions which are entirely unreasonable. One can sympathise with ordinary Greek citizens who are being made to pay a terrifying price for the excesses of their past governments and the short-sightedness of Brussels. But to argue that an election result, on its own, can overturn a loan repayment deadline is clearly unsound.

But Greece’s creditors are no less intransigent in their demands. As various economists have pointed out, the conditions they insist on are not only overly harsh on the Greek population, but they have also to date failed in their primary objectives.

Five years of austerity have only served to reduce the country’s GDP by 25%, while the demands to achieve a budget surplus have led to more unemployment and cuts to the welfare system, which in turn make economic recovery impossible.

But despite glaring evidence of this failure, EU leaders have stolidly refused to budge.

Greece’s creditors have also stubbornly refused to acknowledge their own responsibility for the current crisis. While successive Greek governments and financial institutions cannot be exonerated from the catastrophic consequences of years of overspending and lax legislation, the “troika” itself must shoulder considerable blame for its own flawed forecasts.

The Greek crisis has also exposed a lack of seriousness in the crucial preparation stage for the launch of the euro. Greece was admitted on the basis of financial figures that the EU was only too happy to accept without question at the time: with dire consequences for the new currency.

Meanwhile, the imposition of capital controls on Greece have further narrowed the country’s options. Banks are closed, people cannot withdraw more than €60 a day, and restrictions have been placed on the movement of funds out of the country.

It is difficult to resist the notion that the troika is using its regulatory muscle to force the Greek government into accepting its strict conditions.

All this spells trouble for the immediate future. In Sunday’s referendum, the Greek people face a veritable choice of evils. A ‘no’ vote will strengthen Syriza’s hand and unify the party in government, which is split over whether it should remain in the eurozone or exit it and go it alone. 

There is also a possibility that this could also convince EU leaders to soften their stance and give the country some breathing space… even because the prospect of a Greek exit remains without precedent, and there are no clear rules on the expulsion of countries from the eurozone. 

A ‘yes’ vote, on the other hand, will definitely lead to more instability in Greece: ushering in new elections, a new government, and above all, no end in sight for an austerity programme that has already demonstrably failed.

This raises the possibility that a Greek recovery may not be the only objective in the creditors’ sights. On scrutiny, it turns out that the money already used to bail out Greece has not been ‘squandered’, as claimed, but instead has gone to pay out private-sector creditors: including German and French banks.

Only a small fraction of the €240 billion total bailout money Greece received in 2010 and 2012 found its way into the government’s coffers to help reform the country. 

It is clear that this form of intransigence on both sides is counter-productive. Greece must concede to more economic reforms, but the EU must also acknowledge that its economic policies have so far failed.  

There is more at stake here than just the Greek economy. If the EU continues to dent Greek sovereignty, independence and dignity, contagion and ripple effects could throw the rest of Europe into recession, with Italy, Spain and Portugal already on the brink. 

It is therefore in all of Europe’s interest for a compromise to be found.

More in Editorial