Greece is on the edge of economic and social catastrophe which all the kings men may not be able to put together again for decades.
Experts and historians will strive for years to apportion blame for the unfolding human tragedy in the cradle of European civilization. It is happening despite Europe’s longest ever era of peace, prosperity and broad-based social uplift.
All financial spigots for Greece have been firmly turned off. The result are very disturbing scenes of desperate Greeks crowding the streets to make $66 withdrawals from ATMs just to buy food. This is made worse by the sight of children and old people left without medicines and basic health care.
Whatever the financial justifications for reducing ordinary Greeks to this sorry plight, the mess is monumental. After all, the EU is the world’s richest region with a collective GDP slightly higher than the US.
The Greek government, led by Alexis Tsipras has agreed to almost all the austerity demands of creditors but insists on a write down or long postponement of government debt alongside a new bailout package of about $33 billion over the next two years.
The IMF thinks Greece will need at least $55 billion over the next three years and accuses the 6-month-old Tsipras government of negligent behavior.
Negotiators for Greece’s creditors flatly rejected compromise citing many legal and technical reasons. They were enraged by a Tsipras decision to seek approval for more austerity in a Greek referendum on Sunday, 5 June, and he now accuses them of revenge and blackmail. There is zero trust on both sides.
Germany’s Angela Merkel is the chief political influence on the creditors’ troika of negotiators from the European Commission, International Monetary Fund (IMF) and European Central Bank (ECB).
She has handled the Greek crisis with skill but also fed perceptions that her rigidity brought both the Eurozone and the EU to a brink unthinkable less than a year ago.
In coming weeks, Greece may be driven out of the Eurozone (but not the EU). If the exit occurs, Greeks will suffer economic devastation that could weigh heavily on the perceptions of other poor and middle class people in the EU.
Greece’s creditors seem to be doing their best to scare Greek voters that rejection of more austerity would mean exit from the Eurozone instead of further negotiations. Some are fueling ambiguities that Greece might also have to leave the EU after some time.
The resulting confusion in Greece is immense and hopes that the referendum might be cancelled because of short notice were dashed after today’ Administrative Court ruling that it is constitutional.
The innuendos used by some German and EU Commission personalities about the referendum’s implications may return to bite them. Top Commission officials are sworn to neutrality and their recent public comments affecting the referendum may have gone beyond their mandate
In any case, their words seem cold towards the people and ingratiating towards lenders. Tsipras accuses them of disrespecting Greek democracy and using humiliation to bend the Greek people to the will of creditors.
The display of muscle could increase apprehension among ordinary EU citizens about treatment they might receive if their own country ran into financial crisis. That would cause voters to pull back from EU integration to prevent more power accruing to the Commission.
Undeniably, the people and government of Greece are incapable of fully paying back their debt because of a nearly 33% contraction in economic activity and unemployment of 23% to 50%. Many experts say the contraction was worse in real terms than the great US depression of the 1930s.
Therein lies the crux of the morality drama. Do the powerful members persist in punishing mismanagement by the weaker Greeks, who were enticed in 1981 into the EU family on promises of solidarity, collective prosperity and ever greater union?
Or do they find ways to compromise without threatening expulsion or imposing ignominy upon today’s inheritors of the civilization that engendered their own?
In the end, a Greek bailout would be a $400 billion burden on an economic zone worth more than $15 trillion. And some of it may be repaid if the Greek people are enabled to work, produce and consume again.
The alternative is the first real hole in the fabric of European unity that underpins the post-World War II international order. Russia’s occupation of Crimea will cause much less damage to Europe’s political fabric than a Grexit from the Eurozone.
Some pretend it will be little more than a hiccup because Greece has few exports, just 11 million people and a $240 billion GDP equal to 2.7% of EU production.
They seem to forget that Greece is a strategic frontline NATO ally facing the Middle East and Asia. It also has large emotional and symbolic importance for most European citizens.
At this time, it seems that the Greek people’s weakness is being severely punished through bank closures and financial blockades imposed by European creditors. This is happening after five years of sharp pain in the form of income deprivation, unemployment, falling GDP, lower pensions and almost no health care or social welfare.
The creditors insist on saying “No” to debt restructuring without first obtaining an apparently unconditional surrender by Greece’s left wing government of the populist agenda that got it elected late last year.
This has fueled speculation that on behalf of big money they want to bring down the Athens regime because of its left wing positions.
The financial facts are quite clearly against Greece. It owes about $380 billion including $220 billion to Eurozone governments, $36 billion to the International Monetary Fund and $28 billion to the European Central Bank (ECB). The ECB has also provided about $98 billion in liquidity to Greek banks.
German, French and Italian governments and banks are the most heavily exposed to Greek debt. Some estimates say that a total Greek default would cost $800 for each German citizen, $720 for each Italian and $670 for each French person.
Greece has already defaulted on debt service payments to the IMF on June 30 and is likely to default on $4 billion in payments to European entities in July.
graphic via shutterstock.com