The deal that may make or break the eurozone
It is no secret that the top priority of the new Greek government will be to negotiate a reduction in the country’s debt – as well as to broker softer terms on the austerity conditions forced by its creditors.
Until as recently as the wee hours of Thursday, I thought that this would be unethical: The Greeks had borrowed the money and were under an obligation to pay it back. But then, I realized that this was the same line of reasoning that threw Charles Dickens’ father and many others into debtors’ prisons. I was also reminded by my friend Sinan, who has a conscience even bigger (figuratively) than his head (literally), that creditors should have lent diligently as well.
Leaving moral matters aside, a new deal on debt and austerity is the only way to go from a practical point of view: Even a cursory look at data reveals that not only Greek debt is unsustainable, Greeks cannot take it anymore: One in four Greeks (one in two among the young) is unemployed. While I could not get hold of consumption data, GDP and Balance of Payments statistics hint that Greeks’ spending may have halved since the onset of the global crisis.
The only other way of out, Greece leaving the eurozone and letting its currency depreciate, would have catastrophic consequences for Greeks in the short run – and the common currency area in the longer run – yes, I have break-up in mind. No wonder the country’s new finance minister likened the euro to Hotel California: You can check out, but you can never leave. However, forcing Greece to default, which Prime Minister Alexis Tsipras would like to avoid if he can, would probably result in an exit as well.
But there is another side to the Greek tragedy, which can best be illustrated with a short story: The mayor of a poor Greek town visits their sister pueblo in Spain and finds it to look much richer than his own – even though the municipality does not seem to have much money. He asks the mayor how he manages to keep the town immaculate. The mayor points to the bridge on the river nearby and says: “We got funds from the EU for a bridge with a four-lane road, but we only built a single lane. We used the rest of the money for the town.”
A few months later, it is the Spaniard’s turn to pay a visit, and he finds the Greek town to look even richer than his own. Bewildered, he asks the Greek mayor how he managed that. The Greek points to the river nearby and asks: “Do you see the bridge on that river?” “But there is no bridge on that river,” answers the Spanish mayor, confused. “Exactly,” the sly Greek answers back.
Despite the obvious exaggeration, this little joke sums up the corruption, crony capitalism, tax evasion and the like that was in effect financed by the euro project in not only Greece, but in all of Club Med. In that respect, debt reduction in exchange for reform would be a win-win situation. And it seems that Tsipras is well aware of the need for reform – and therefore likely to accept such a deal.
But we’ll have to see if Greece’s creditors, and especially German Chancellor Angela Merkel, will soften their stance. Frau Doktor Merkel is widely seen as the person who saved the eurozone. I hope one mistake does not cause her to go down in history books as the person who broke it up.