The Greek debt crisis that erupted in 2010 is back, and again
threatens the stability of the Eurozone. That crisis was the result of two
factors. First, an unbridled spending drift of both the private and the public
sectors in Greece during the boom years of 2000-2010, which led to unsustainable
large levels of debt. Second, reckless lending to Greece by Northern Eurozone
banks. At no time the Northern bankers asked themselves the question of whether
the Greeks would repay the loans.
The European Unions chose to resolve the debt crisis by punishing
the Greeks and by saving the Northern banks. A punitive austerity program was
imposed on Greece, whose effects are now visible everywhere in this country. A
decline in GDP of close to 25% since 2010, a rise in unemployment to a level we
have not seen since the nineteen thirties, and impoverishment of large parts of
the Greek population.
The banks went largely unpunished. True there was a debt
restructuring of the Greek debt held by private investors. Some banks paid the
price of excessive credit granted to Greece, but most banks escaped this fate
by dumping their Greek claims onto the public sector. Those claims are now in
the hands of national governments and the European Central Bank. And these want
to have their money back whatever the consequences may be for the Greek people
and the Greek political system.
The official narrative of this approach is that the intense austerity
that was imposed on the Greek population
is inevitable and in the end will bear fruit.
Inevitable? Yes, of course, if the intention is to safeguard
the interests of the creditors then there is indeed only one possibility: the
Greeks have to pay the full price.
Will it pay off in the end? Yes, of course if austerity is
maintained long enough it will succeed in creating surpluses and transfers of
resources from Greece towards the rich North of the Eurozone.
This narrative, however, loses sight of the political
upheavals triggered by the human misery that results form intense austerity. The
millions of people who are pushed into misery by the creditors from the North
of Europe are not passive subjects. They not only protest in the streets,
something the creditors can easily live with. They also vote for those
political parties that promise them that there is a better way to deal with the
problem. And these are the parties that are out to break the established
political and social order.
It is appalling to see that the European political elite has
been living in a cocoon, failing to take into account the political and social
implications of the intense austerity programs they imposed in countries like
Greece (but also in other countries of the periphery). This political elite
still has not learned the lessons. The first reaction of the German minister of
finance after the announcement of new elections in Greece was that the
discipline needed to be continued rigorously.
What is to be done? Much will depend on the election results
in Greece. The far-left party, Syriza, seeks to weaken the intensity of the austerity
programs and to negotiate a debt restructuring with the European authorities.
It is quite surprising to find out that these demands, in
fact, are based on a correct analysis of the Greek problem. Despite the austerity,
that has been extraordinarily intense, the Greek public debt has increased and now
exceeds 170% of GDP. The burden of this debt is so high that future Greek
governments will not be able to continue to service it.
Instead of denying this reality the EU finance ministers should
start facing it. They should begin to think about how they can ease the debt burden
of Greece. Denying this reality condemns Greece to many more years of misery
and will encourage extremist political movements in the country even further.
The risk today is that the political leaders of the Eurozone
refuse to relieve the Greek debt (and that of other countries of the
periphery). In that case, a fundamental crisis in the Eurozone is inevitable.
Even if Syriza does not make it at the coming election, extremist parties will gain
the upper hand in future elections. This will be very disruptive for the
Eurozone as a whole.
History teaches us that after a debt crisis a balance must be
found between the interests of creditors and debtors. The unilateral approach that
has been taken in the Eurozone in which the debtors have been forced to bear
the full weight of the adjustment almost always leads to a revolt of these
debtors. That is now underway in Greece. It can only be stopped if creditors dare
to face this reality.
