Is it a Greek Tragedy or a European One?
The imbroglio of the Greek debt, the confused signals sent out by the creditors, and the sad plight of Greece which is the cradle of the Western civilization remind one of Polonius’s advice to his son Laertes (who wanted money for higher studies in Paris) in Shakespeare’s Hamlet:
Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
As a matter of fact, there is a common error about the EU-Greece crisis that it is all about money or rather economics. The reality, however, is that flawed assessments, political and psychological, and even more, the difficulties of inter-generational communication, have begotten this crisis.
Let us look at the communication gap. Christine Legarde, the Managing Director of the International Monetary Fund, said that she needed ‘some adults’ in the room to talk to. Obviously, she meant that the 40 year young Greek Prime Minister Alexis Tsirpas, with his sartorial choice of ‘no tie’, is not an adult. Legarde is 19 years older to Tsirpas. The most important interlocutor, German Chancellor Angela Merkel, is 20 years older than Tsirpas. As for the other protagonists, Mario Draghi, the chief of the European Central Bank, is 67; and the President of the European Union, Jean Claude Juncker, is 61.
What is intriguing is that both Merkel and Legarde seem to fail to understand that Tsirpas has to carry his people with him when he signs a deal in Brussels. They believe that the medicine they have administered to Greece under the previous government, which was humiliatingly defeated in the general election in January 2015, has worked so far and that the patient, with no say in the matter, requires a further dose of that medicine.
The medicine prescribed by the confident physicians who want to treat Greece as a patient is austerity: cutting down of government spending irrespective of its disastrous impact on the lives of the people. This is an instance of absolute dogmatism, deaf and blind to realities. In fact, the Greek economy has shrunk under the treatment of Dr. Merkel’s team of doctors; unemployment soared up from 7.2 per cent in 2008 to 26.4 per cent now. What is even more worrying is that youth unemployment is at a phenomenal 60 per cent. These cold statistics, obviously, do not bring out the enormous human pain and suffering. That can only be understood by those who have a sense of empathy with the people of Greece. It is absurd and un-Christian to see Greece as a debtor to be punished severely.
It does not take rocket science to understand what has happened. When government spending is cut, real human beings, not the mythical homo economicus, lose their income; when income shrinks, demand shrinks; when demand shrinks production shrinks; and when production shrinks demand shrinks further, with the economy entering into a vicious cycle, ultimately generating an economic black hole. It passeth one’s understanding that the leaders of the Western establishment find it difficult to understand all this. Or, is it that they understand, but couldn’t care less as Merkel does not have to stand for election in Greece. She has to worry only about her electorate in Germany who have a profoundly erroneous idea of the imbroglio. They seem to believe that Greece, having benefitted from Germany’s ‘largesse’, should appear in sack cloth and ashes and accept with contrition the punishment administered and indeed should be grateful to the munificent donor. Here a question of enduring importance in political science arises: When the electorate is wrong, should not a good leader try to point out the error and convince the electorate of its error? Or should the leader mechanically follow the crowd and cease to lead?
Coming to the financial part of the imbroglio, the creditors have been withholding an amount of USD 7.2 billion which they had earlier agreed to release, insisting that Greece should agree to more austerity measures before the money is made available. The creditors want the cutting down of the pension of those who are getting the lowest amount, extension of VAT to electricity and medicines, and so on. Basically, Tsirpas offered to tax the rich more and to leave out any measures hitting the poorest. The IMF says that his proposal is not good economics. Good economics is when the poor are hit and the rich spared. While rejecting that offer, described by Merkel as “extraordinarily generous”, Tsirpas said: “The founding principles of the European Union were democracy, solidarity and mutual respect. These principles are not based on blackmail and ultimatum.” (Emphasis added.)
The Greek Parliament has called for a referendum on July 5. The exact text of the referendum is not known. Basically, it will ask the people to say yes or no to ‘austerity’ as dictated by the creditors. Tsirpas has made it clear that, though he is opposed to austerity, he would go by the verdict of the people and accept austerity if that is what the majority wants.
Reacting to the call for referendum that took the creditors by surprise, Legarde said that it was meaningless to hold one as there is no proposal from the creditors on the table. While her Cartesian logic is perfect, it was difficult not to notice her malicious pleasure as she argued her case. But she fell from logical perfection when she added that the IMF was always there to help work out a settlement.
After the run on the banks in Greece last week, the European Central Bank decided not to pump money into Greek banks in quantities sufficient to take care of the run. This is unprecedented and is a clear violation of the rules of the game. Perhaps, the Bank did it to influence the referendum. Greek banks will remain closed for some days.
While the referendum is ostensibly about austerity, in reality it is about Greece’s continuance in the European Union. The Greeks want to remain within the EU, but the question is whether they are prepared to pay the painful price thereof. If the verdict is no to austerity, there will be no more money from the creditors. Even though Greece might be technically in the EU thereafter, as there is no provision for throwing out a member state, it will be out de facto.
We do not dare to predict the result of the referendum. If the people accept austerity, the creditors will impose such a Draconian variety of austerity, and the same people will reject it later in another referendum. If the people reject austerity, Greece will not pay the creditors and they can do nothing more to punish it. A prudent government in Athens might be secretly printing the old currency drachma. States have defaulted in the past and survived to recover solvency. Let us watch the markets. The argument that Greece accounts only for two per cent of the EU economy and can be pushed out without any collateral damage might prove to be naive. If the market punishes them, the creditors might be less unreasonable, if and when negotiations resume.
I was in Rome when the Euro was introduced in 1999. I remember the Representative of the German Central Bank telling me that it was a political decision to include Italy and Greece, a decision essentially flawed economically. I asked him whether there could be a single currency for a certain number of countries without a single treasury. He had no answer. Unless there is a miracle, we are witnessing the beginning of the end of the ‘ever closer’ union as mandated by the Maastricht Treaty of 1992. Meanwhile, the ‘perfidious Albion’ has asked for a revision of the treaty that might end up in a messy divorce.
It was the vision of Jean Monnet and others of an earlier generation that begat the European Coal and Steel Community when Europe was lying prostrate after World War II. Now, Europe is rich and industrially strong. The question is whether the successors of Monnet have the moral strength to move in the right direction rather than act like petty minded accountants who want to balance the books at any cost.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India
The article has been amended for a spelling change.
