For someone who writes about economics, the situation in Greece offers two enticing elements: the ability to spin out moments of high drama, and the probability it will endlessly repeat forever. We’ve experienced five years (really, here’s one of my first stories on Greece, from April 2010) of wondering whether the deeply indebted country will exit the euro or submit to more painful conditions from its European creditors. Two governments – the center-right and the center-left – took the latter option, and paid dearly for it. Now the far-left Syriza appears poised to do the same, after delivering a new proposal to unlock bailout funds.
Meanwhile, the prospects for ordinary Greek citizens never changes, adding a nightmarish “Groundhog Day” touch to the proceedings. Regardless of whether the country is spiraling into near-default or praising a debt deal, unemployment has remained over 25 percent for the past three years. Half a decade into the Great Depression, there was at least some semblance of a brighter day; in Greece there are only gradations of misery. And what could break this terrible cycle is the only thing the political system and the public imagination cannot seem to contemplate: leaving the euro.
What has been happening in Greece has been a long exercise in sadism by European elites, who care only about keeping their political project alive, regardless of how those who must deal with the consequences are affected. Three governments ago, Greece rang up a series of debts that they have no practical ability to pay back. The structure of the eurozone, 19 countries sharing a common currency, encouraged this debt buildup, which manifested through capital flows from the wealthier north to the southern periphery. With a single currency, investors chased higher returns in countries where capital was scarcer; this was part of the core euro design. When the investors pulled out and the debts came due, the northern states, led by Germany, pretended this didn’t happen and demanded their money back.
The European Union, the European Central Bank and the International Monetary Fund – the “troika” for short – forced Greece and other debtor nations into a bailout program, where they would run budget surpluses, even in the midst of a depression, and repay debts over the long-term. But the troika had another mission. They wanted to suck the oxygen out of any anti-austerity movement in Europe, and knuckle every country under their dictates. Therefore, the troika's entire goal with Syriza, who entered office in January, has been not only to grant them concessions in negotiations, but to directly humiliate them and force them into a series of bad choices, as a lesson to all other Eurozone countries.
The latest proposal from Syriza, after months of delays and rejections, reflects this forced grovel. The government, which faces default if they don’t pay the IMF 1.6 billion euro by the end of the month, has committed to higher contributions for their pension plan, including from retirees. They will significantly ramp up their value-added tax (VAT), which acts like a sales tax, hitting those of modest means the hardest. Because Syriza didn’t cut pension payouts any further, and maintained the same VAT for selected items, they are claiming that they didn’t cross any of their red lines.
But despite some modest tax increases on corporate profits and luxury yachts, the bottom line is that Syriza agreed to future austerity measures indefinitely. Under the plan, they would maintain a budgetary surplus at 1 percent of gross domestic product for 2015. The surplus would steadily rise to 2 percent next year, 3 percent in 2017 and as high as 3.5 percent by 2018, as a condition for getting their bailout funds. It’s possible that these targets are “made to be missed,” as writer Daniel Davies puts it. And the surplus for 2015, at least, is less than first proposed. But since conditions have worsened in Greece since negotiations began in February, and the current budget deficit is higher, they're still assenting to the same level of budget cuts to hit the target. And this is before the troika tweaks the deal more to their liking.
This was the goal, to keep Greece impoverished, to punish them for their sins, as if we were talking about a morality play and not a country of 10.8 million people. And even if the troika agrees to the Syriza proposal, which looks more likely, it would only unlock the remainder of funds under the current bailout, buying at most six months of time until the next crisis point.
Syriza had no real hand to play in the negotiations. They don’t have the luxury of their own currency, so they could not inflate their way out of debt. The eurozone leadership spent the last five years fireproofing their institutions to limit the effects of a Greek exit. European banks are now not exposed to Greece, and Germany believes Greece’s expulsion would only cost them a pittance. That obliterated Syriza’s leverage. The troika obviously still care about Greece staying in the eurozone, or they wouldn’t keep negotiating. They desire a united Europe, transforming the continent from its war-torn past. But that’s not enough to get Greece a decent deal.
Greek citizens have marched against austerity for years, but they don’t seem quite ready to go back to the drachma, and lose the perceived prestige they think the eurozone provides. There’s even a “pro-Europe” demonstration movement in the country. Syriza finance minister Yanis Varoufakis has said that leaving the euro would send Greece back to the Neolithic Age. And in the short-term, there is fear that the European Central Bank would let go of their lifeline for the Greek banking system. In fact, the European Central Bank’s dark threats of an “uncontrollable crisis” without a deal provoked a bank run and backed Syriza further into a corner.
A lockout from international credit markets would paralyze the country’s economy in the immediate term. But the economy is already paralyzed, and if in control of its own currency, Greece could actually devalue and make its exports attractive to the world (particularly its cheap tourism), thereby beginning to dig out.
The reaction from elites about this prospect is ably shown in this Op-Ed by Larry Summers, who calls anything but Greece knuckling under to austerity a catastrophe. Give the Greeks a little debt relief so they can slash pensions and raise taxes on the poor, and everything will work out. In that sense, the debate over Greece resembles the debate in America over trade policy. There is no alternative to the current system, and anyone who messes with the natural order of things threatens disaster: In the United States, failing to pass corporate-written deals, such as the Trans-Pacific Partnership, supposedly risks the prestige and foreign policy designs of the nation; In Greece, failing to beat up their citizens some more supposedly risks the smooth functioning of Europe.
The eurozone project could be doomed regardless of Greece’s actions. And Greece is certainly doomed to a seemingly endless series of crisis points and unsatisfactory resolutions, while they can’t find work and must pay more for basic goods and services. The entire continent of Europe is stuck in a box of their own making, led by vain economic illiterates who think heaping more pain on the public is the path to glory. Without new thinking, I’ll be writing this same column in another six months, in perpetuity.