Grexit

Coming Sunday (Jan. 25), Greece will elect a new parliament. The populist left party Syriza is ahead in the polls at the moment. Syriza’s leader, Alexis Tsipras, said his party will put a stop to the German-led austerity measures that he describes as “unreasonable and catastrophic” policies for his country. If Syriza manages to win the elections and form a new government, Greece might demand a renegotiation with the European Union regarding the Greek debt and the EU’s austerity measures.

Der Spiegel, a German weekly newspaper, reported two weeks ago that anonymous sources in high places (which was translated by other media into Chancellor Merkel) had said that Greece leaving the Eurozone is a realistic option if Syriza wins the elections. The demands that Syriza has are unacceptable to Germany, according to Der Spiegel’s anonymous sources.

The so called possible ‘Grexit’ – Greece leaving the Eurozone – has become a hype in the media over the last few weeks. What is striking is the emphasis on financial and economic interests and the lack of solidarity in the debate. The risks of Greece stepping out of the monetary union is calculated purely in terms of risks for other countries in the monetary union and these risks are only defined economically and financially. But what about the political consequences and the future of Greece if it would actually leave the Eurozone? A Greek exit would be devastating for Greece: it would have to re-introduce the drachme, which would have to devaluate strongly against the Euro. The Greek debts, however, would still have to be paid in Euro’s. It would be impossible for Greece to pay them back.

If Greece leaves the Eurozone, the country will go bankrupt and highly likely into political anarchy. It could quickly escalate into becoming a failed state. This would not be an unthinkable option. Greece is also a member of the EU and NATO. What will happen if Greece becomes a failed state and what would that mean for the security in South-Eastern Europe? This is something that is not discussed with regards to a possible Grexit. In the meantime, German Eurocrats and the ECB put pressure on the Greek electorate and try to influence their voting behaviour, trying to put Greece into a vicious circle of austerity measures and a stagnating economy.

The European Central Bank, for example, threatened Athens that Greek banks would not be able to borrow money after February if the Greek governments does not live up to the agreements that were previously made. This powerplay from the ECB limits the room for negotiation Tsipras will have when he wins the election and forms a new government. The loans from the ECB are something Greece cannot go without. The reason Tsipras wants to renegotiate the austerity measures in the first place, however, is because Greece has problems paying back their debts while it is trying to let the country function normally. The burden is just too high.

The amount of debt Greece has, 175% of GDP, is too large. Greece’s has borrowed around 250 billion in the past years from other EU countries and the IMF. Only 11% of this was used for investments in the public sector. The rest was used to bail-out banks and to finance previous debts. Alexis Tsipras, Syriza’s leader, is not the only one complaining about the austerity measures threatening the functioning of Greece. More and more economists agree on the disruptive effect austerity measures have on the economy.

A fresh start would be the best for Greece. This would mean other EU countries and the IMF would have to write off some of Greece’s debts, so that an amount of debt would be left that Greece is able to pay back in a reasonable way. However, solidarity in the EU is low and other EU countries (such as Germany and the Netherlands) are afraid they cannot sell this to their own electorate. This is for a large part where the Grexit-threats come from to begin with. The Eurozone cannot write off all of the Greek debts, but it can bring them back to a reasonable amount. This gives Greece the economic freedom to invest in employment and economic growth, making it more stable both economically and politically.

The European integration project should be understood a bit like a marriage: ‘for better or for worse’ also goes for the monetary union. The Southern European countries – Spain and Italy are also dealing with large amount of debts – did not join the Eurozone so they could be kicked out once the benefits of a monetary union for the Northern European countries would be lacking.

Image Source: pbs.org