As discussions about whether Greece should
be allowed to default on its debt or be kept on
financial life support pick up between European
capitals, one gets the impression that the
Europeans are playing with fire - the fiery demon
of old nationalist hatreds - and are rocking the
very boat in which they find themselves together.
On Thursday, the Financial Times reported
that a deal for a 130-billion-euro (US$170
billion) bailout, expected to be finalized next
Monday, would "contain unprecedented controls on
Athens' ability to spend funds" such as "an escrow
account that must always contain enough cash to
pay Greece's debt for nine to 12 months" and "a
permanent and beefed-up presence of international
monitors who will attempt to keep real-time tabs
on the Greek government's spending decisions". [1]
Other reports are more cautious about the
precise parameters of
the deal, which will
also involve private investors accepting losses on
Greek government bonds. The Economist, for
example, points out that "[t]he delays may reflect
the brinkmanship that is part of any tough
negotiation. Greece is short of cash but not of
bargaining chips. Without fresh bail-out money, it
faces a chaotic default ... [which] might provoke
wider contagion." [2]
Yet the writing has
been on the wall for some time now, and the signs
have only become more worrying. Ever since, two
years ago, the Greek deputy prime minister at the
time, Theodoros Pangalos, attempted to lay
responsibility for the financial crisis on
Germany, blaming the Nazis for stealing the Greek
gold some 70 years earlier, extreme nationalist
sentiment in Europe has received a new boost - the
financial crisis.
The European far-right
has been on the rise in the last years. [3] While
the crisis isn't the only factor to blame, the
latest verbal arguments between officials, which
echo sentiments on European and Greek streets,
raise eyebrows and testify to just how far things
have gone.
Earlier, the Financial Times
described a conference call between the eurozone's
financial ministers (what remained of a summit
that was cancelled, and subsequently postponed for
Monday) and its aftermath: "The battle of wills
between Athens and its eurozone lenders
intensified on Wednesday, with Greece's finance
minister accusing 'forces in Europe' of pushing
his country out of the euro while his German
counterpart suggested postponing Greek elections
and installing a new government without political
parties." [4]
The proposals of German
Finance Minister Wolfgang Schaeuble - echoed to an
extent in the outlines provided by the latest
Financial Times report on the bailout deal -
effectively seek to subvert democracy in Greece.
They come in the wake of repeated failures by the
Greek government to implement past reforms and
testify, among other things, to the frayed nerves
of European leaders.
They elicited a quick
response also from the Greek President Karolos
Papoulias, who earlier on Wednesday had announced
that he would give up his annual salary of roughly
400,000 euros in a symbolic move to help his
country. Papoulias lashed out against Schaeuble
and his Dutch and Finnish colleagues (who
allegedly supported Schaeuble's positions on
Greece and threatened to veto the bailout deal on
Wednesday):
I don't accept insults to my country
by Mr. Schaeuble. ... I don't accept it as a
Greek. Who is Mr Schaeuble to ridicule Greece?
Who are the Dutch? Who are the Finns? We always
had the pride to defend not just our own
freedom, not just our own country, but the
freedom of all of Europe.
On the
streets of Greece, meanwhile, the burning of
German flags seems to have become something
normal. The phenomenon, which in a separate
analysis the Financial Times calls "a certain
'renationalisation' of public opinion across
Europe", is not limited to the relations between
Greece and Germany:
It is visible, for example, in
France's presidential election campaign. [German
Chancellor] Ms [Angela] Merkel threw her support
behind Nicolas Sarkozy, the centre-right
incumbent, after France lost the top-notch
credit rating still enjoyed by Germany. But the
French left yearns to maximise its autonomy in
economic policymaking, should it win the
election. This sidesteps the reality that
Franco-German equality, so central to post-1945
European integration, is, at least in economic
terms, a fiction. [5]
While
nationalist sentiments, according to most
observers, are hardly strong enough yet to
threaten the existence of the European Union, the
confrontation between Greece and Germany could be
symptomatic of worse to come if the financial
meltdown is not contained.
Here is,
however, where Germany's dilemma becomes apparent:
if tough rules are not enforced with Greece, there
are a number of countries waiting in the wings for
handouts. None are likely to agree to any less
than meted out to Athens.
This means two
things: firstly, all troubled eurozone countries
are likely to request similar "haircuts" as the
one private investors are expected to accept on
Greece (50% or higher). Secondly, none are likely
to agree to any tougher austerity measures than
the ones Athens is forced to implement.
The nightmare scenario is a vicious cycle
in which countries would keep missing financial
targets and needing further assistance. Some could
indeed become bottomless pits for German money;
worse, by the time Italy comes hat-in-hand, Berlin
would probably have gone bankrupt itself.
In some ways, the dilemma today in the
eurozone mirrors the main question of the US
financial crisis of 2008. Bad behavior must be
punished, lest it produce more bad behavior, but
not in ways that could endanger the whole system.
To put it differently, and to substitute states
for investment banks, who is too big to fail, and
who is too big to save?
According to the
American think-tank Stratfor, precisely this kind
of thinking is behind the German proposals - some
of which have been in circulation for quite some
time. Last month, Stratfor documented another,
very similar recent attempt by Germany to
effectively interfere in the sovereign affairs of
Greece:
The Germans argue that given the
failure of the Greek state, and by extension the
Greek public, creditors have the power and moral
right to suspend the principle of national
self-determination ...
The Germans are
caught in a dilemma. On the one hand, Germany is
the last country in Europe that could afford
general austerity in troubled states and the
resulting decline in demand. On the other hand,
it cannot simply tolerate Greek-style
indifference to fiscal prudence. Germany must
have a structured solution that to some degree
maintains demand in countries such as Spain or
Italy; Germans must show there are consequences
to not complying with the orderly handling of
debt without default. Above all, the Germans
must preserve the European Union so they can
enjoy a European free-trade zone. There is thus
an inherent tension between preserving the
system and imposing discipline.
Germany
has decided to make an example of the Greeks.
[6]
The big problem with this
rationale, as Stratfor points out, is that nations
are fundamentally very different from
corporations. To take this point further, numerous
attempts to organize the lives of human beings
according to the logic of markets have failed
miserably in the past, and this current one is
likely destined for a disastrous end as well. In
an alternate nightmare scenario, the European
leaders risk fanning the flames of ethnic hatred
and mistrust which were buried, but never quite
put out, by the common European project.
How much damage that could do is
impossible to predict, but the history of Europe -
including the recent history of the Balkans - is
full of bloodshed. A researcher had once estimated
that if all outstanding land claims by
nation-states in the Balkans were to be honored,
the area of the peninsula would have to be two to
three times larger than it is.
And while
war is clearly not on the horizon right now,
social upheaval, and perhaps increased tensions,
probably are. A Greek debt default - something
that, at least in the form of an "orderly
restructuring", is practically unavoidable right
now - would surely impact the whole region.
Greek banks, which will be hit
particularly badly, as they hold a lot of their
government's debt, also own a significant share of
the region's financial system. That includes
approximately 30% of Bulgarian banks, 17% of
Romanian banks, 15% of Serbian banks, and a
significant percentage of Macedonian and Albanian
banks (more accurate data are hard to come by).
Sources and publications in the region
(specifically in Bulgaria, which seems to be most
exposed) report that Greek banks have already
pulled large amounts of capital out of their
regional subsidiaries and branches, and that this
is causing a tangible financial crunch.
It
is a different question that there are hardly any
good choices when it comes to Greece. Some
economists have long argued that it would be best
(or least bad) for the country to leave the euro
and to default on its debt. "The reason everyone
assumes a default will happen is that the bailout
program is not working," wrote Michael Schuman in
an insightful analysis for Time Magazine last
September. [7]
Part of the reason why
Greece keeps missing targets and breaking promises
is that the austerity measures already enacted,
together with the political instability which has
plagued the country, have caused an unprecedented
drop in gross domestic product (GDP). According to
an apocalyptic Reuters report, this could soon set
a precedent in history. [8]
"It's an
implosion - it's an endless sequence of implosions
from bad to worse, to worse, to worse," a Greek
economic expert told The New York Times last
month. "There's nothing to stop the Greek economy
losing 60 percent of its GDP, given the path it is
at." [9]
On the ground, there are signs of
panic as people reportedly stock up on precious
metals, [10] and there is serious talk about
"rolling blackouts". [11] In a poignant St
Valentine's day article, Der Spiegel documents the
plight of the "new poor" who were until recently a
part of the Greek middle class. [12]
Previously, riots broke out in Athens and
other cities on Sunday evening after the Greek
parliament ratified a new set of austerity
measures, with extensive arson and property
damage. "Greek lawmakers approve austerity bill as
Athens burns", a Reuters headline reads that day.
Now, even after one of the main Greek
critics of the austerity measures, the leader of
the conservative New Democracy Party Antonis
Samaras, submitted written assurances that he will
honor the bill, the northern Europeans have
started to drag their feet. Increasingly, the
subject of discussions has shifted to how well
insulated Europe is from a Greek default.
Officially, the German government
continues to deny that it considers a Greek
default to be a viable option, but the unofficial
talk about letting Athens go bankrupt, or
alternatively delaying parts of the bailout
package until after the elections, has grown
louder. Brussels is clearly intent on holding the
feet of Greek politicians to the fire, and that is
a more dangerous undertaking than it seems.
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