Round The World
New
Delhi, 8 July 2015
Greek
Tragedy
LITMUS
TEST FOR EU
By Amrita
Banerjee
(School of
International Studies, JNU, New Delhi)
The question of how to save Greece, debated
for over five years, has been European Union’s recurring nightmare. The problem
this time is more acute after the country’s citizens voted to reject the terms
of a new bailout by the international creditors, Greece is now veering closer to
leaving the 19-nation eurozone and abandoning the shared currency, a move that
could destabilize the region and reverberate around the globe.
A flashback to the Eurozone Crisis
reveals that Greece became
the epicentre of Europe’s debt crisis after a
decade of overspending especially after Wall Street imploded in 2008. With
global financial markets still reeling, Greece announced in October 2009
that it had been understating its deficit figures for years, raising alarms
about the soundness of Greek finances. Suddenly, Greece was shut out from borrowing
in the financial markets. By the spring of 2010, it was veering toward
bankruptcy, which threatened to set off a new financial crisis.
To avert calamity, the so-called
troika — the International Monetary Fund, the European Central Bank and the
European Commission — issued the first of two international bailouts for
Greece, which would eventually total more than 240 billion euros, or about $264
billion at today’s exchange rates. Greece defaulted on repayment of
Euro 1.6 billion to IMF on 30th June; another payment of Euro 4.5
billion is due on the 13th July.
The bailouts were given with strict
austerity measures and conditions. Lenders imposed harsh austerity terms,
requiring deep budget cuts and steep tax increases. They also required Greece
to overhaul its economy by streamlining the government, ending tax evasion and
making Greece an easier place to do business.The money was supposed to buy
Greece time to stabilize its finances and quell market fears that the euro
union itself could break up. While it has helped, Greece’s economic problems haven’t
gone away.
Today, Greece faces emergency in four aspects.
First, the Sovereign Debt Crisis -- the money owed by the Greek government to international/european
lenders. Second, the Banking Crisis – huge capital outflows has left very
little with banks. Third, the Capital Outflows – more and more money exiting
Greece everyday and lastly Negative Trade Balance – tourism industry is
severely hit which was the main source of Euros and Forex.
The economy has shrunk by a quarter
in five years, and unemployment is above 25 percent. It is so because the
bailout money mainly goes toward paying off Greece’s international loans,
rather than making its way into the economy. And the government still has a
staggering debt load that it cannot begin to pay down unless a recovery takes
hold.
Many economists and Greeks, blame
the austerity measures for much of the country’s continuing problems. The
leftist Syriza party rode to power in January this year promising to
renegotiate the bailout; Prime Minister Tsipras said that austerity had created
a ‘humanitarian crisis’ in Greece.
But the country’s exasperated creditors, especially Germany,
blame Athens
for failing to conduct the economic overhauls required under its bailout
agreement. They don’t want to change the rules for Greece.
As the debate rages, the only thing
everyone agrees on is that Greece
is yet again running out of money — and fast. The government last week missed a
critical debt payment to the IMF, and its banks have been forced to close. And
on Sunday, the anti-austerity government in Athens scored a decisive victory as voters by
an astounding 61% backed its call to reject a compromise with international
creditors in a referendum, raising serious doubts about the country’s ability
to remain inside the eurozone.
By giving a strong verdict through
the referendum, Athens
has answered that it wants to chart its own course.Even though this verdict
will strengthen Syriza at the negotiating table, the party would have the
burden of navigating the country through what’s likely to be a painful
financial and human crisis. The gamble will shape the economy of this nation of
11 million for more than a generation.
Now coming to the question of what
impact a ‘Grexit’ would have in EU considering the fact that the Greece economy
is only about 2 percent of the euro zone's total. One school of thought says
that Europe has put up safeguards to limit the
so-called financial contagion, in an effort to keep the problems from spreading
to other countries. Greece,
just a tiny part of the eurozone economy, could regain financial autonomy and
thus the eurozone would actually be better off without a country that seems to
constantly need its neighbours’ support.
The other school of thought says
that despite the frustration of endless negotiations, European political
leaders see a united Europe as an imperative.
At the same time, they still haven’t fixed some of the biggest shortcomings of
the eurozone’s structure by creating a more federal-style system of
transferring money as needed among members — the way the US does among its
various States.
Further, exiting euro zone would
involve a legal minefield that no country has yet ventured to cross. There are
also no provisions for departure, voluntary or forced, from the euro currency
union. Moreover, ‘Grexit’ would embolden anti-austerity parties in the rest of
the continent by showing that they have nothing to lose but their fiscal chains
by challenging the continent's budget-cutting orthodoxy.
The economic crisis in Greece is a
manifestation of a political failure across the EU. The IMF and Germany’s
response to this crisis raises profound questions about the existence of
European Union as a union. Germany fears that there are other vulnerable (but
better) economies (Portugal, Italy, Ireland, Spain) and any relaxation to
Greece will lure these countries to follow the suit.The absence of a principle
of internal safety net for an imploding economy, and the failure of the EU’s
more developed nations, especially Germany, to provide such a safety net to a
less developed one like Greece has brought the EU to the brink of unravelling.
But this crisis is not just about
sovereign default. In fact, it is about the future of Europe.Two exogenous
factors have come to shape the Western response to an unfolding Greek tragedy.
First, the rise of Germany
as a geoeconomic power and second the return of Russia as a geopolitical player.
Over the years, a more economically successful and prosperous Germany has
asserted itself, projecting its post-war ‘geoeconomic’ power to acquire
political influence. Second, the induction into the EU of several east and
north European economies worried about the resurgence of Russia as a
geopolitical player.
In this regard, economic crises do
have geopolitical consequences. The European financial crisis will consolidate
German, and perhaps Russian, power in Europe as a similar analogy can be drawn
from the Asian financial crisis of the 90’s when itconsolidated the Chinese
power in Asia. The crisis in Europe is a test
for Washington
too. Having fathered the post-war trans-Atlantic order, the US is unable or
unwilling to step in and preserve the EU in its present form. To end, one can
just say that the Greece
financial tragedy raises important questions about the strength of a globalised
economy and in this regard, this crisis is a litmus test for the world at
large. --- INFA
(Copyright,
India News and Feature Alliance)
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