Among the 19 Eurozone countries, Greece remains the weakest. Its economy has kept adding more burdens on the other EU members, particularly for Germany. However, the crisis keeps reflecting the inherent contradictions between a nation state’s obligations and those of the wider bloc.
When the global financial crisis hit, Greece was on the verge of an outright bankruptcy. But, the EU and the International Monetary Fund (IMF) stepped in and pumped more than €300 billion (Dh1.3 trillion) into the flailing economy.
The bailout package was not a kind deed but given to Athens at a painfully high price, through the imposition of austerity policies and which finally led to the fall of the centre-right government and the victory of the radical left in last month’s elections.
Alexis Tsipras, leader of the Syriza party, played on national sentiments and criticised the austerity policy imposed by the EU Commission, describing his manifesto as a ‘National Salvation’ to restore the dignity of the Greeks.
European leaders, it has to be said, were quick to respond to Tsipras’ rhetoric. They said any move to stop the policy of austerity will result in loans being handed out, thus dragging Greece further into a dark tunnel. Emotions, however, will not work in finding a solution.
In fact, Greece is almost bankrupt and credit rating agencies have threatened to downgrade Greece from a B stable to negative, a move that will lead to increased capital outflow and make the situation even more complicated.
In fact, capital had begun to flee even before this threat as deposits withdrawn rose by 166 per cent in just a month to €8 billion in January compared to €3 billion in December, while the Greek Stock Exchange collapsed, leading banks to lose a quarter of their value.
So, there is a very complex problem facing the new regime in Greece on how to deal with debts and with retaining membership in the Eurozone, because there are election obligations and those made with the EU earlier are inconsistent with them. Germany was very clear when it said that “changes in Greece should not be at the expense of other Europeans”.
This means any leniency with Greece will prompt Spain, Portugal and, perhaps, Italy, to follow suit by adopting the same method which the EU is trying to avoid as much as possible.
Last week, right after the announcement of the election results, a meeting of European officials with Greek counterparts focused on how to resolve the debts, which were paid from the pockets of European taxpayers, if the problem is not resolved by a compromise from both sides. Not making a compromise could lead to disastrous results and the exit of Greece from the Eurozone, especially as the issue of writing off Greece’s debts is not possible, according to Jean-Claude Juncker, President of the European Commission.
In addition to the need for reaching an agreement with the EU Commission, it is important for Athens’ new regime to work hard to stop the outflow of foreign investments and fight against corruption and tax evasion that have swelled to €14 billion. There is a major imbalance in Greece’s economic management.
In case both sides fail to arrive at a mutually satisfactory solution, the outcome will be a Greek exit, which would harm the European currency in the short term. But it would generate additional strength over the medium-and long-term, akin to how a cat eats the weaker of its newborn kittens at birth due to a perceived inability to survive and by staying alive it will be at the expense of the other kittens.
In any case, the way the European Commission will define the way to deal with euro’s “sick man” will be a marker in future dealings with other states that suffer from similar problems. It seems that this will even complicate the issue of making a quick decision to tackle the Greek crisis.
Dr Mohammad Al Asoomi is a UAE economic expert and specialist in economic and social development in the UAE and the GCC countries.