The Greek Threat
In December, the people of Greece were gripped by tension, while the rest of Europe looked on in apprehension, as the Greek government tried – and failed — three times to get its candidate for President elected by the Greek parliament.
Even though the post of president is mainly ceremonial and carries little real power, under the Greek constitution the failure to elect a president triggered the fall of the sitting government to resign and sent the country to a general election.
In January, as the Greek election scheduled for January 25 drew closer, Europe and the wider world held their collective breath, waiting to see whether the Greek public would put extremist parties into power. In two successive elections held in 2012, the Greek electorate had displayed its disgust with the mainstream parties that had governed the country over the previous decades and, after driving it into bankruptcy, had accepted very harsh terms under the bailouts offered by the European Union (EU).
Yet, in those 2012 elections, although support for the extreme-left Syriza party had surged and the neo-Nazi Golden Dawn party had attracted enough votes to win seats in the Greek parliament, still the centre-right New Democracy party had emerged as the largest party and created a coalition government that co-operated with the EU.
But the impact of five years of intense austerity programs, which forced the Greek government to fire large numbers of (unnecessary) civil servants and massively cut its (bloated) budget– so that unemployment and poverty soared and even necessities like medicines became scarce – pushed more and more Greeks toward the extremist parties. The attraction of Syriza’s simple platform – to demand a renegotiation of the humiliating agreements imposed on Greece by ‘the troika’, comprising the EU, the European Central Bank and the International Monetary Fund – proved too great. Syriza won a stunning victory, allowing it to form a government with only one small coalition partner.
Now, in February, the entire world is following the count-down to February 28, when Greece is due to make some repayments to its creditors – but, says the new Greek government, it will not do so unless and until the troika agrees to renegotiate and thereby takes the pressure off Greece and its long-suffering public.
This is dramatic stuff, but it is important to realise that it is no more than another round in a long-running game of very high-stakes poker being played between Greece and the rest of the EU – but, ultimately, with Germany. It is Angela Merkel’s Germany which has led the tough line taken by the EU towards Greece over the last five years and, since Germany is the country that bears the main burden of bailing out Greece, it is Merkel who decides the overall European policy.
However, it is also essential to realise that the stakes being played for are not the well-being (or otherwise) of the people and country of Greece. Other than to the Greeks themselves, Greece itself is of no importance to anyone else, despite everyone’s intense focus on ‘the Greek crisis’.
Greece is a small country with a small economy – although the scale of the debt it racked up in the years before its bubble burst in 2009 would have suited a much larger country. Nevertheless, Greece’s fate is critical to the future of the EU and of the eurozone – the countries that have adopted the euro as their single currency.
If no compromise is reached and Greece leaves – the option known as ‘Grexit’ – this may prove to be Europe’s ‘Lehman moment’. That was when the Bush Administration decided in September 2008 to allow investment banking giant Lehman Brothers to fail, on the assumption that the financial system could absorb the blow – only to discover that the interlinkage of institutions was so great that the collapse of one triggered a chain reaction that would have destroyed the entire system, had the US Treasury and Federal Reserve not intervened on a huge scale.
On the other hand, if the EU gives in to Greece’s demands, the chances of economic reform in Italy, Spain and France – and thus of a sustainable recovery in Europe’s sick economy – will effectively disappear. Those are the real stakes and that’s why the eyes of the financial world remain fixed on Greece.