At its launch on January 1, 1999, the euro’s creators imagined entry into European monetary union as irreversible — a hotel from which, once a country checks in, it can never check out. But if Greece is to be a permanent resident, someone has to pay its bill.
Is the hotel management becoming restless? As Greece prepares for its January 25 election, some policy makers in Berlin and Brussels are dropping hints that the Eurozone is better placed than in 2012 to survive a Greek exit, and might even be stronger without Greece.
Whether they believe this, or would convert beliefs into action, is another matter. Three years ago, at the height of the sovereign debt and bank sector emergencies, the German and Dutch governments looked hard at letting Greece go and decided not to. They feared setting a precedent with unpredictable financial and geopolitical consequences.
It would not have been a case of formally expelling Greece, for there is no legal mechanism to kick a country out of the Eurozone. The European hoteliers would instead have asserted that the Greek guest, after losing his chips at the casino, had decided to leave town.
In today’s circumstances, with Greece about to go to the polls, it seems odd at first sight that the spectre of Grexit has once more raised its head. No likely winner of the election supports it, and neither do most Greek voters. As for Greece’s 18 Eurozone partners, some well understand the danger of setting financial markets a precedent that might one day imperil themselves.
The explanation is that Germany, and EU policy makers in Brussels, are sending a signal to Greek voters and political parties, especially Syriza, the radical leftwing group that leads in opinion polls. Their message is that no government should count on far-reaching concessions from Greece’s European creditors when talks resume on its €245billion (Dh1.97 trillion) international bailout.
On Thursday, the European Central Bank reinforced this message. It suggested that the special terms on which Greek banks enjoy access to ECB funds might lapse unless Greece struck a fresh deal with its EU and International Monetary Fund lenders. This access is so crucial to the Greek financial system that the next government in Athens, provided that it wants to stay in the Eurozone, will be in no position to threaten its creditors. In contrast, then, to Greece’s back-to-back election campaigns of May and June 2012, the central issue today is not Grexit. It is how whoever becomes prime minister will negotiate a compromise over the next stage of Greece’s rescue programme.
If Alexis Tsipras of Syriza wins, the European creditors will be wise to offer him, as a democratically elected Greek leader, some carrots in return for the EU-IMF stick. But the creditors should also make it clear that financial aid still depends on a sincere, energetic reform effort.
In return, they should make their surveillance of that effort less intrusive, addressing the Greek population’s acute resentment at being under a kind of foreign punishment regime for almost five years. They could permit lower targets for Greece’s primary fiscal surplus and let Tsipras increase the minimum wage, though by less than the 50 per cent he proposes.
Most important of all, the creditors need to consider seriously Syriza’s call for debt restructuring. Perhaps, given political conditions in Germany and other creditor counties, it is hopeless to talk of a generous reduction of the nominal value of Greece’s €175 billion debt in return for cast-iron commitments on economic reform from a Syriza-led government. But if each side could make the necessary compromises, who knows how long they could share the same hotel?
—Financial Times
