The Build-Up to the Greek Crisis and its Impact

Axel Sotiris Walldén

What is the state of this country, six years after the crisis broke out and after six years of forced therapy?

From 2008 to 2015, Greece lost 26% of its GDP. This is one of the greatest recessions ever recorded worldwide in peacetime, comparable to the 1929 Great Depression. Other south European countries hit by crises registered cumulative GDP drops ranging from 3 to 8%. And while these latter countries have been recovering in the past few years, Greece’s GDP remains largely flat since 2013. Today, Greece ranks 22nd among the 28 EU member states in terms of per capita GDP (in purchasing power parities), down seven positions from 2008.

In terms of unemployment, Greece is the champion among EU nations, with an impressive 25% in 2015, as against 9.4% for the EU average and 4.6% for Germany. In 2008 Greece, Germany and the EU average were at the same level of 7-8%. Greece tops the EU list also with respect to unemployment among youth, which is 50%, as against 20% for the EU average. In 2008 youth unemployment was less than half as high in Greece (22%). And these figures do not take into account the massive emigration, especially of educated young people, that is taking place since the crisis broke out.

The fall in incomes and living standards is even more dramatic than GDP figures would suggest. Wages and pensions have sometimes been cut by 50% or more, while prices have hardly followed. Taxes have been raised. Public services, notably in the health sector and in education have deteriorated sharply. Small enterprises and shops have been closing by the thousands. Poverty has risen sharply and an increasing number of citizens have to rely on charity for their daily food. We have cases of pupils fainting in school because of malnutrition. The number of suicides has risen. Predictably, the most strongly affected have been the unemployed, but also middle strata. But inequalities have also increased, meaning that there are also winners from this catastrophe. 

This is not the picture of a European country. And, surely, such a landscape of devastation cannot have been the objective of policies intended to help the country! Yet, this is what they undeniably brought.

Of equal importance is the prevailing mood in the country. Polls show that Greeks top the European list of pessimism for the future. People can see no light at the end of the tunnel; they feel their children have no future in this country and encourage them to emigrate. Such a climate is hardly compatible with the necessary major national effort to redress the country.

 

The build-up to the crisis

How did we get here? 

Well, for decades the Greek economy and society has been suffering from serious structural deficiencies. Gone long since are the days when this country posed as a capitalist tiger, successfully competing with its neighbouring communist states, albeit with an ailing democracy or even with military rule. Already in the seventies, Greece’s economic dynamism started abating. Growth rates dropped, external balances became precarious, competitiveness eroded. A clientelist political system became a major obstacle to modernisation, protecting privileges, tax evasion, a highly inefficient and corrupt state and nurturing reform aversion. Accession to the EU in 1981 brought some elements of modernisation, but also had substantial perverse effects. Massive transfers from European funds and a psychology of security within the EU created a cushion of complacency which hid underlying problems.

There were of course ups and downs, good periods and less good ones. The coming to power for the first time of a socialist government under Andreas Papandreou in the early eighties, in addition to the political liberalisation it brought, allowed for much-needed social reforms and the strengthening of the welfare state, even though the economics of the new government were sometimes flawed. The second half of the eighties witnessed a rapid degeneration of the socialist government, with scandals and corruption attaining record levels and eventually leading to political instability. In the early nineties a short-lived attempt by the conservative government under Konstantinos Mitsotakis to implement a neo-liberal agenda proved an utter failure.

The period 1996-2003 under socialist Prime Minister Simitis were arguably the best years in our recent history. Simitis managed to stabilise the economy and thus bring the country into the euro area, while ensuring rising living standards and implementing a social-democratic agenda. By the way, it is not true, as some foreign critics claim, that the country was smuggled into the Eurozone by fudging the statistics. Some ‘creative accounting’ did take place, but it was minor and fully comparable to similar practices by other Eurozone countries. In our times of generalised bashing of Greece, one should recall that in the early millennium years there was general consensus that Greece was now performing well, in terms of economy, foreign policy and general governance. Greeks remember this period as one of increasing prosperity, symbolised by the inauguration of the excellent Athens Metro and the Athens peripheral motorway in the run up to the Olympic Games; Balkan neighbours recall the important 2003 EU-Western Balkan Thessaloniki summit. I personally remember highly flattering comments on Greece and its government by partners in the EU institutions. I even recall internal debates within the Greek administration on whether we should adopt a tough line vis-à-vis Germany and France who had violated the Maastricht criteria!

Simitis did not succeed in healing all the deficiencies of the political system, though. Corruption, in particular, remained high and probably even increased. Also, the general feeling we were on the right path, contributed to underestimating the urgency of certain reforms. An attempt to overhaul the heavily ailing pension system met with massive opposition in society and was abandoned.

However, the actual derailing of the Greek economy essentially took place during the years 2004-2009 under the conservative government of Kostas Karamanlis (not to be confused with Konstantinos Karamanlis, the long-standing PM and President of the Republic by the same name, an uncle of the younger Karamanlis). Karamanlis’ laissez-faire attitude towards the economy and governance in general –his period was labelled as that of the ‘automatic pilot’-, went hand in hand with a spectacular rise of clientelism. People were recruited by the thousands in an already highly inefficient administration. Public funds were massively allocated to political friends and clients. Incomes were allowed to rise without due consideration of the economic constraints. Greece borrowed excessively from abroad, profiting from low interest rates in the Eurozone. The country’s competitiveness further declined and the budget deficit exploded, reaching a spectacular 15% of GDP in 2009, which was concealed in the official statistics in what, this time, was a major falsification.

Karamanlis was succeeded in 2009 by a socialist government under Giorgos Papandreou, the son of the already mentioned Andreas Papandreou, who was also the son of a PM. (Incidentally, please note the dominant nepotism in Greek mainstream politics: the Papandreou and Karamanlis dynasties, but also that of the Mitsotakis family –the current leader of the conservative opposition Kyriakos being the son of former PM Konstantinos and the brother of a long-standing minister, Dora Bakoyannis). Papandreou came to power just about when the crisis broke out, but was in full denial of it: ‘Money is available’ was a central slogan of his pre-election campaign. And the months it took for him to realise where we stood added to the disastrous situation.

It would be unfair, however, to omit to mention the role played by international factors, in addition to the domestic ones:

First, the EU and the Eurozone. If Greece borrowed excessively during its first years within the Eurozone, obviously someone lent it excessively. And the lenders were basically big French and German banks, which financed -among other things- large defence procurements and public works. Clearly, there is something wrong with a currency union that creates incentives for such behaviour. And, clearly the complacency shown by national and European supervisory authorities to the derailing of the economy of a member state must have had a cause: incompetence of these authorities, irresponsible support to export industries, or other reasons. Most Greeks remember Commission President Barroso in pre-electoral tour in Greece in 2007, supporting his party-friend Karamanlis and praising the achievements of the Greek economy, just two years before its total collapse.

The second international factor was of course the global financial crisis triggered by the collapse of Lehman Brothers. The volatility shown by financial markets and the major run on bonds of a government that was normally considered safe as part of the Eurozone are undoubtedly largely the result of that crisis. This in its turn testifies to a highly problematic functioning of the world capitalist economy. One would never imagine the excesses of a tiny country triggering panic on a world scale and disastrously feeding back into the Greek economy, were it not for this global dysfunction. 

Thus, the Greek crisis was definitely the making of domestic factors, but its extent and acuteness are the result of Greece becoming a weak link in a problematic global and European environment.

I should maybe mention that my narrative on the build-up to the crisis is not an uncontested one. Some voices from the right would not agree that their government in the years immediately preceding the crisis was the main responsible for the derailment; they would rather attribute the crisis to the long hegemony of the socialists since the 1980s. Some voices from the left tend to condemn all previous governments back-to-back as expressions of a rotten system, thus trying to justify in my view their own sectarian record of vehement opposition to the social-democrat Simitis and their tolerance of Karamanlis’ populist laxness. Also, one often hears from abroad sweeping judgements and stereotypes according to which Greece was a basket-case since the beginning of times. In my view, they are wrong: until the early 2000s, Greece, despite its problems, was not in an ineluctable path of collapse. On the contrary, there were fair chances it would manage to consolidate a decent position within the EU.

 

A medicine that proved toxic

Be it as it is, in early 2010 Greece, with huge budgetary and current account deficits and a sizeable foreign debt, found herself abruptly excluded from international financial markets, facing the immediate prospect of an unorderly bankruptcy. Being a member of the Eurozone, devaluation was not an option. Solidarity and assistance from the EU were desperately needed.

Yet, the reaction from EU partners was tardive, incoherent, largely punitive, narrowly selfish and technically highly incompetent.

Europe has a habit of postponing difficult decisions, which it did this time too. However, it was soon realised that a chaotic collapse of Greece could bring down the creditor European banks and indeed trigger a new crisis of global dimensions through a domino effect on other Eurozone countries; that could well mean the end of the euro. So, Greece was lent enormous sums, totalling € 330 bn; this kept it from defaulting, but further increased its debt. A hair-cut of non-official debt was also implemented, but proved wholly insufficient. In parallel, the creditors imposed on the country hard measures aimed at redressing the budgetary balance and improving competitiveness.

Alas, the course that was adopted and the character of the measures, in no way assisted Greece to address the crisis and recover from it in a sustainable way. The priorities dominating the three successive programmes imposed on the country from 2010 to 2015 can be summed up to the following: saving the creditor banks rather than the Greek economy; honouring the no-bail out clause in the Eurozone statutes; achieving repayment of the debt at a pace and on terms that proved incompatible with the recovery of the economy; implementing massive privatisations aimed solely at obtaining cash for debt repayment; imposing reforms through a major internal devaluation, meaning a radical cut of incomes and a disbandment of the welfare state; deregulating the labour market beyond European standards. The concepts behind this approach were of course the dominant neo-liberal philosophy, German hegemonism and also the notion of ‘moral hazard’: other Eurozone countries had to be discouraged from behaving like Greece, hence Greece had to be severely punished. And the punishment went along the lines of ‘collective responsibility’; the population at large was to be penalised.

In Germany and elsewhere in northern Europe the Greek drama nurtured a populistic rhetoric: industrious Germans and north Europeans were paying for profligate Greeks and other Southerners. The dysfunctions of the Eurozone were wholly attributable to the South. The stereotype of the lazy Greek who enjoys the sun and the sea while the others are working –a myth discarded by statistics- was spread not only by tabloids and populist magazines, but even by persons such as Ms Merkel, as it supported the official German opposition to a so-called ‘transfer union’, meaning a union where rich countries have to pay in return for the advantages they enjoy at the expense of others through the Union. Unsurprisingly, this propaganda was music to the ears of anti-Europeans and nationalists and Ms Merkel had later to dissociate herself from it.

Intentionally or not, EU and IMF forecasts grossly underestimated the effects of the programmes on the Greek economy, notably on the GDP and employment. Evidently, it would have been much more difficult to impose these programmes, had it been clear from the outset that they would bring the effects just described. Besides its disastrous effects on the population, the therapy did not achieve most of its proclaimed aims. It did bring the budget deficit to balance and it also drastically reduced the balance of payments deficit, the latter exclusively through contraction of imports resulting from austerity and curtailment of investments. But, predictably, the country hardly benefited at all from a strategy based exclusively on reducing labour costs, a strategy that is obviously inappropriate for an EU country. Privatisations proved unfeasible at the prescribed scale. And the general disorder and atmosphere created by such extreme austerity rendered impossible any implementation of serious and needed reforms. As a result, the foreign debt skyrocketed further, reaching a spectacular 180% of GDP (which according to the IMF could further increase in coming years). The whole logic of the rescue was to push the bucket down the road, perpetually lending Greece so that it would pay its previous debts and ignoring the effects on the economy and society.

How did the country react?

The crisis shook the very foundations of the Greek political system. The Papandreou government, belatedly awakening to the situation, promptly fell in line with the demands of the Eurozone diréctoire. At some point, Papandreou tried to proclaim an ambiguous referendum –ambiguous because it was unclear whether he was asking citizens to support or reject the EU diktats. That was beyond what Merkel and Sarkozy would tolerate and the Greek PM was brutally reprimanded in pure neo-colonial style; the referendum was aborted and Papandreou resigned shortly after. 

A coalition government was formed with the two main parties, first under a technocrat, Bank of Greece Governor Papademos, and subsequently under conservative New Democracy leader Samaras, notorious for his dismal nationalist record on the Macedonian issue as FM back in the nineties. New Democracy, while still in opposition, had opposed the programme, but when co-opted into the government also fell in line. Some outbursts of feeble resistance were quickly abandoned. The coalition partners were soon claiming the ownership of imposed reforms, sometimes going as far as presenting them as the only salvation of the country. They saw no problem in agreeing with the lenders that the Greek debt was sustainable, a fiction maintained by the Germans to avoid addressing the sensitive issue of debt relief. They also repeatedly promised that austerity was over, no further measures were to be taken, only to announce new ones shortly after. 

Not surprisingly, society reacted largely in furore. There was some limited support to the measures. A few self-proclaimed reformists adopted an attitude of self-flagellation. Greece and its people were guilty, the lenders were well meaning partners, if not parents who justly punished their delinquent child. The few authentic neo-liberals in this country seized the opportunity to make their point on TINA (‘there is no alternative’). Others still, more sober, argued in terms of realism that we had no choice but to accept the prevailing attitudes in Europe and hence it made no sense to protest; we should rather do our homework and await better days.

But this was not the general mood. Calvinist morals were never popular in this orthodox country; neo-liberalism had always been a marginal current, in minority even among conservatives; and there was a long tradition of resistance to policies imposed from abroad. Most importantly, it soon became obvious that the medicine was highly toxic. In other European countries, measures that amounted to a small fraction of the austerity that was imposed on the Greeks provoked real social uprisings. So, no wonder the reaction was strong. This is, by the way, where the ‘realists’ erred: their realism did not extend to the social and political sustainability of the therapy.

People started turning out to the streets and the political debate took a nasty turn. Ms Merkel’s portraits were painted with swastikas, pro-memorandum supporters were labelled collaborators and sometimes harassed, conspiracy theories against the EU and Germany were resuscitated. Such extreme behaviour was of course exploited by populists in Germany and the north-south rift deepened. However, the vast majority of those who reacted to the programmes were neither anti-European, nor anti-German. They were naturally reacting to their abrupt pauperisation which they did not attribute to their own genes or laziness, but to a rotten political elite, which now posed unconvincingly as their saviour, and to an egoistic European leadership, in which they had until then believed.

The credibility of the two major parties suffered heavily, the main victim being socialist PASOK, both because of the traditional progressive leanings of its electorate and because that party’s leadership proved the most eager to assume ownership of the reforms. Its ratings dropped from above 40% to single-digit figures.

The rise of SYRIZA and the moment of truth

It is in this context of massive pauperisation, of a social tissue torn apart, of paralysis of public administration, of polarised politics and of total discrediting of the major political parties that the rapid course to power of SYRIZA started.

In 2010, SYRIZA was still a small radical left party, struggling to stay above the 3% threshold to remain in Parliament. It was strongly supportive of social protest movements, sometimes lenient towards violent protests. As most such parties, it denounced the establishment without bothering too much to articulate coherent alternative policies. It had of course no experience of government. On the other hand, SYRIZA was not anti-European or Stalinist (though it counted some supporters of both these currents within its ranks). It advocated the reform of the EU and had positive agendas on the environment, social policies and immigration; its origins were mostly from the reformist communists, since Greece had and still has a sizeable purely Stalinist Communist Party.

The crisis with the demise of PASOK was the golden opportunity SYRIZA seized. With its young leader Tsipras, who eventually proved quite charismatic, and a populist agenda, SYRIZA’s influence grew rapidly. It accused the ruling parties of being ‘yes men’ and corrupt. It denounced the political establishment and the programmes; and it promised that, once in power, it would summarily tear the latter, abolish austerity and erase the debt in a stroke. 

Few believed SYRIZA would fulfil all its promises. Greeks are used to pre-electoral demagogy and take it with a pinch of salt. They remember how Andreas Papandreou had promised leaving the EEC and NATO and indeed bringing socialism on the day he came to power, only to settle with much more modest –yet important- reforms when that day came. But SYRIZA succeeded in giving some hope to a desperate people. A growing number of Greeks were exasperated with the inhuman austerity that fell upon them; they were fed up with the ruling parties and their corruption and wanted new faces; they wished a more dignified relationship with Europe; and they would probably be satisfied if Tsipras fulfilled a fraction of his promises.

The rise of SYRIZA spread panic to the establishment. Tsipras was perceived as a deadly threat to the political system, indeed to the nation itself. He was charged with all the failures. It was not the lousy governance by the traditional parties, nor the design and implementation of the programmes that were responsible for the Greek tragedy, but SYRIZA’s demagogy and support to popular opposition. The coalition parties proved incapable of grasping the extent of the resentment caused by the policies they were implementing. They could not imagine the country being governed by others than themselves. And they could not either see that the country was fortunate to be turning to a pro-European left and not to an anti-European, xenophobic and fascist extreme right or to maverick parties, as mostly happens in other European countries. An extreme right, indeed in its ugliest form of neo-Nazism, did grow in Greece too during the crisis, but fortunately remained largely in minority.

Tsipras eventually managed to topple the Samaras government over the election of the new President of the Republic, an election requiring qualified majority in Parliament. He won the January 2015 elections and formed a government in coalition with a small populist rightist party. He then swiftly lowered his demands. There was no longer an insistence on nominal debt relief and most of his negotiating positions were more moderate than what the IMF proposes today, notably on the long-term primary budgetary surplus and the extent of austerity it would entail. True, the rhetoric was often aggressive and sometimes gave the impression that SYRIZA was out to bring about some sort of European revolution. More importantly, the government evidently underestimated the power of hard-core forces, rallying around German finance minister Schäuble and having a hardly hidden agenda for Grexit. 

The Greek government’s real objective during the protracted negotiations with the lenders that took place in the first half of 2015 was to obtain a result that would be marginally better than the existing situation, thus vindicating the struggle it waged. It did succeed to politicise the Greek issue on a world scale, an issue that was otherwise obscured in technocratic jargon. Its main argument, that the Greek people had suffered enough and that the programmes were a failure, did win some international sympathy, for instance in the Obama Administration or in the new socialist French government. However, the objective of the extremist group around Schäuble was the exact opposite: to humiliate Tsipras, so that no one else –say Spain- follows the same path. Indeed, Schäuble aimed to effectively expel Greece from the Eurozone (by the way something that is not foreseen by the EU treaties), thus starting a process of forming a narrower Eurozone of ‘the fittest’. The Greek government’s aggressive tactics and lack of experience facilitated its own isolation and the Grexit plans.

With Berlin and Brussels daily predicting an oncoming Grexit, and with the European Central Bank gradually strangulating the Greek banking system of liquidity, citizens reacted rationally: they massively withdrew their money from the banks. The situation became untenable: capital controls had to be imposed, and the country was on the brink of a chaotic default, while the collapse of its banking system was imminent.

At that moment, Tsipras opted controversially for a fuite en avant, by proclaiming a referendum on the EU proposals. His objective was to strengthen his negotiating position, not to pave the way for Grexit. However, the European establishment and the domestic opposition claimed that citizens were voting about leaving or staying in Europe. Greeks rejected the latter dilemma and massively supported their Government, by an impressive 61%, a clear indication of the nation’s mood and exasperation. But Tsipras had apparently miscalculated the effect of his victory on his European partners. The Greek defiance proved the opportunity sought by those who wished to orchestrate Grexit. Faced with the immediate prospect of a disastrous expulsion, Tsipras made a sudden U-turn, by-passing minority voices within his party that were advocating a rupture. He was forced to sign a rather humiliating new memorandum, the price for a new €84 bn loan, while the more moderate European forces managed in extremis to defeat the group around Schäuble who were still aiming at Grexit.

 

Uphill struggle for the country and for SYRIZA

Following the July 2015 deal, Tsipras has to implement policies that are the exact opposite of his philosophy and earlier promises, indeed policies which he had always claimed were disastrous and unsustainable. His predecessors can now claim they were right when they said they had no alternative but to do what they did. Yet, SYRIZA held that it at least had tried and had fought a heroic battle; it had backed, when it saw the lenders were prepared to expel to country from the Eurozone, which proved that SYRIZA had no Grexit agenda, contrarily to what the opposition claimed; and now, even with the constraints of the new programme, a SYRIZA government would be different from its predecessors: it would exploit existing margins to follow a more socially sensitive and progressive course; it was not corrupt; it would better negotiate debt relief; and it would position itself in Europe with the forces fighting for a change of course.

To the surprise of many, the electorate approved once again SYRIZA in snap elections held in September 2015. This time Tsipras’ victory could not be attributed to pre-electoral demagogy; rather, Greek citizens, despite everything, approved his resistance and still trusted him more than his predecessors. The opposition’s strategy of an all-out attack on SYRIZA and their siding with the lenders proved counter-productive.

Still, the SYRIZA government is faced with an almost impossible task. The cumulative effects of six years of austerity, past and new, are intensely felt. Even marginal further curtailing of incomes generates strong reactions. The bank run and the capital controls –irrespective of whether they should be attributed to the government’s mismanagement or to the lenders’ blackmail- have had negative effects on the economy, albeit not as important ones as initially predicted. And, of course, SYRIZA is inexperienced in government and rather confused ideologically after last summer’s volte-face.

Needless to stress that my description of last year’s events is not shared by the government’s opponents. For the opposition, the irresponsible maximalism of SYRIZA caused a national catastrophe at the moment the country was about to exit the crisis. The opposition parties voted in Parliament for the new programme, but subsequently oppose all the measures prescribed in it, claiming they are the making of an incompetent Government. In this they seem to copy the populism of SYRIZA, probably assuming that if it worked for Tsipras, it will now work for them as well. As a result, the Greek political scene remains as polarised as ever. The opposition aims at an immediate overthrow of the Government, but its tactics have up to now remained ineffective, probably because no one has a serious alternative to propose. This is probably also the reason why the government now receives support from foreign capitals and leaders, some of whom do not hesitate to highly praise the Greek PM, to the dismay of domestic opposition.

However, it is quite possible that the vicious circle in which Greece has plunged will bring down this government as well in the not too distant future. And then what? No plausible positive scenario is on offer. 

You will understand that, in my view, there is little ground for optimism as long as Greece is obliged to implement the imposed programme. I highly respect and support the ambition of the present government to make a difference, even within this framework; I note their efforts to imprint a social dimension on the measures they take and to relaunch growth; and I strongly believe this country has nothing to gain from seeing the old faces back in power. But, frankly I am convinced the present course is not sustainable, economically, socially or politically.

Is there any hope? Well, maybe yes. The non-sustainability of present Eurozone and EU policies in general, and of those imposed on Greece in particular is increasingly acknowledged. The recent dispute between the IMF, which obviously has US backing, and Berlin is exactly about this; views for a more open policy towards Greece have emerged even within the Eurozone hard core. It is ironic, yet comforting, to hear ECB officials, the Eurogroup chair and others join their voices to that of the IMF in declaring Greek debt unsustainable and advocating substantial debt relief and much lower primary surpluses than those imposed just a few months ago. All these voices are now saying exactly what the Greek government said last year and was severely punished as a heretic for that. So, after all, Tsipras was basically right last year. His demands were neither unreasonable nor revolutionary. His real sin was that he miscalculated the brutal intentions of a hard-core group within the Eurozone.

What lies behind this change? Most probably reality itself, which shows the impasse of present policies at Greek and at European level. Also, the refugee crisis has added a heavy burden on the Greek economy and raised some sympathy for the government’s humane attitude. It is increasingly realised that Greece cannot play the role of a buffer it has been unilaterally assigned by EU governments in the refugee crisis, without some support. Also, SYRIZA is to be credited for making Greece’s voice and situation heard at a global scale.

Are we then about to witness a turn for the better in the lenders’ attitude towards Greece? Unfortunately, this is not secured. The broader European developments do not seem to favour the strengthening of solidarity within the EU. Faced with the challenge of extreme-right, anti-European and nationalist forces, mainstream Europe clings to its economic policies, while adopting in part the nationalist agenda, notably on refugees and migration. With respect to Greece, the strategists of a small Eurozone without Greece and other southerners are still working on their project and could exploit the Brexit referendum, whatever its outcome. The architects of the programmes are still defending their destructive work. Their present strategy seems to be to postpone again any major decision until after the 2017 German elections. But time is not on Greece’s side. The present programme brings catastrophe every day that passes. And then, before the German elections, we have the French elections with Ms Le Pen lurking, while the German elections themselves are hardly likely to produce a Bundestag more favourable to Greece. So changing the course is a matter of urgency.

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Let me conclude:

The Greek crisis does not have its roots in the DNA of the Greek people, but definitely in domestic factors, long-standing structural deficiencies and mismanagement by the political establishment. However, the tragedy we are witnessing during the past six years is largely the result of an ill-designed therapy imposed by Greece’s creditors. The country’s present political landscape is the product of the crisis and very much of the disastrous therapy forced upon it. The demise of the old political system is a natural and welcome outcome; and the rise of a radical left, that remains pro-European in the midst of the present European chaos and has become increasingly responsible, is probably the best of possible options for this country. 

Let it be clear that an exit of Greece from the Eurozone is, in my view, in no way a solution. First, because a go-it-alone strategy is not advisable, particularly for a small country like Greece, for both economic and geopolitical reasons. But also because a transition back to a national currency under present conditions would be even more painful than the therapy we are undergoing. This view is shared by the Government and, apparently, by a large majority of Greeks, although, increasingly, it is only fear that makes them reluctant to leave.

Our nations, including the larger member states, are simply too small to face separately the challenges of a globalised world. We need Europe to defend and develop our freedoms and our way of life, the European social model. It is by struggling within a Europe to change it for the better, and not by destroying or leaving it that we have a chance of succeeding.

On the other hand, I can see no exit from the crisis while the creditors continue to apply their punitive therapy. However, my hope is that realities in Greece and developments in Europe will force a change of direction. At this point such a change seems probable for Greece, but, unfortunately less probable for Europe and, I am afraid, the broader developments could affect negatively the Greek scene as well.

Far from being an isolated phenomenon, the Greek case is the most vivid expression of a course of Europe that is untenable. Policies that bring massive unemployment, poverty, inequalities and insecurity, measures that are imposed without a minimum of democratic consensus, inter-state relations that remind of colonial times are no ways to defeat those who are out to destroy the EU. Europe cannot survive out of the fear of people to leave it. We need policies that focus more on employment and growth. We need more solidarity. If people are not convinced there is something good for them in the EU, they will naturally abandon it, sooner or later. So, for Europe and the international community, saving Greece, genuinely assisting it to exit from the present quagmire, is not an act of charity, but of enlightened self-interest.

 

And Now?

On the international scene, Brexit and Donald Trump’s election dramatically increase uncertainties over the EU’s future and its very survival. Euroscepticism and far-right forces are on the rise throughout Europe. For the first time, a collapse of the EU is conceivable; Greece would suffer most from it.

Prospects for a more benevolent attitude towards Greece by its lenders are less likely today than last June. Supporters of Greece, such as the Obama, Hollande and Renzi administrations have left or are leaving the scene, while their successors (even discarding further worst case scenarios, with Le Pen and Grillo) are unlikely to have the same positive attitude. In Germany, the mood is for even less solidarity and the September elections are expected to confirm this trend.

These developments will most probably frustrate the Greek government’s hopes for substantial debt relief and an ensuing easing of the austerity imposed on the country. Recent and ongoing negotiations seem to confirm this grim picture. The IMF, which at some point appeared to support a change of course, is likely to settle for a ‘compromise’ with Berlin at the expense of Greece, by which more austerity will compensate for lack of debt relief; alternatively it might leave the programme, thus further complicating its implementation. Schäuble for his part, always in strong position in Germany, multiplies provocative statements reminding that Grexit is still on his agenda. It is increasingly unclear how Greece will service its debt after 2018: substantial debt relief, new EU loans or borrowing on the financial markets seem unlikely and more austerity would be politically and economically suicidal.

Predictably, the Tsipras government is overwhelmed, trapped in an almost impossible situation. True, doomsday forecasts by the opposition have not materialised: the programme is broadly on track and some of its objectives, including that on the primary surplus, are surpassed; the Government’s parliamentary majority is not threatened; and SYRIZA’s efforts for a socially fair distribution of burdens is evident. Yet, the party has difficulty in focusing on policy objectives that would satisfy and mobilise public opinion or at least its own supporters, yielding visible results. Continued and cumulative austerity is increasingly, if unfairly, attributed to the present government. Blunders of its own making, such as an unfortunate attempt to cleanse the media landscape, add to the misfortunes imposed from abroad. Under present conditions, the government’s inexperience and related inefficiency is strongly felt. As a result, SYRIZA’s ratings have dropped. 

An additional challenge comes from Greece’s eastern neighbour. In a context of rapid backsliding into authoritarianism, Erdoğan has lately been making aggressive statements and gestures towards Greece, even questioning the borders established by the Lausanne Treaty. While Greek reactions are on the whole measured, exacerbation of foreign policy issues reveals the existence of a potentially dangerous nationalist component within the government. Besides, the refugee crisis could return at any moment, in the likely event the EU-Turkey deal would collapse.

Faced with a heap of obstacles, Tsipras seems to hesitate between fighting on and attempting a “heroic exit” by calling early elections (which he would probably lose). He has repeatedly declared he will not “desert”, but informed observers do not exclude the option of elections. For their part, the opposition parties insist on their all-out war against the government and the conservative New Democracy keeps asking for elections. In reality, no one is particularly eager to get the hot potato. Still, a return to power of the old guard seems now more likely, though nothing indicates it would better address the country’s problems. On the contrary, New Democracy’s incoherent mixture of neo-liberalism, old-style clientelism and rightist populism is a recipe for further disasters. Also, its alignment in Europe with the forces that bear the main responsibility for the Union’s present state, would place Greece in the wrong camp in any attempt to salvage the European project. An interesting development could be an observed change of direction in the socialist PASOK party which could be turning away from its alliance with the conservatives. This could open the way for a new coalition, whereby PASOK would replace the populist ANEL as SYRIZA’s partner, in government or in opposition.

To sum up, in a period where the deepest pessimism reigns in Europe and the West, it would be difficult to feel differently in Greece. Uncertainties dominate. However, most of the likely scenarios are bad. What seems increasingly clear is that the fate of Greece is closely –if not fully- tied to the course Europe will take in the coming months and years.

 

(first published in CHRONOS magazine, 25 Jan. 2017)

ΧΡΟΝΟΣ #45, 25 Ιανουαρίου 2016


This text is part of a Keynote speech delivered at the 7th Annual International Conference of “Humanity in Action”, Athens 23 June 2016. The last part has been added in January 2017.


Axel Sotiris Walldén was born in Athens in 1949. He studied economics in Sweden and France and was awarded his PhD from the University of Athens. From 1996 to 2014 he held various posts in the European Commission related to enlargement and neighbourhood policies. In 2000-2003 he served as Counsellor to the Greek Foreign Minister on Balkan affairs. Previously, he had served, inter alia, as secretary-general at the Hellenic Ministry of National Economy and as a visiting professor at the Panteion University, Athens. 

Walldén has been teaching a post-graduate course at the Institut d’Etudes européennes of the Université Libre de Bruxelles. He is the author of 15 books and a large number of articles in scientific reviews and journals mostly on Balkan, EU enlargement and Greek foreign and domestic policy issues. His latest books are Europe, the Greek crisis and the democratic left (2014) and From Lapland to the Acropolis: the European Itinerary of a Swede in the 20th Century (2016).