Thursday, February 9, 2012

The (real) Greek drama (II)

If we analyse the current state of affairs, we can argue that the Greek crisis has been dealt with the  wrong way. It's not just about money, but political courage and true solidarity if we really want to keep Greece in the euro area. Any scenario of Greece outside the euro area would be a catastrophe, particularly for the Greek people. It is also true that Greek politicians barely took action on tackling the crisis in the past two years.

But, more fundamentally, the whole debate about the Greek crisis highlights the weaknesses and flaws of the governance system, notably the impossibility under the current legal framework for the ECB to lend directly to member States at a low interest rate or to issue eurobonds to mutualize European debt. The German-French proposal of setting up a special account for Greece to offer creditors security will in the near future be discussed by the finance ministers of the euro zone. But the only way forward is to consider the idea of downsizing Greece's debt to an acceptable level.

In the meantime, the cacophony continues while people suffer from that situation.  Trade unions held a general strike to defend the interests of the middle class  which is now under siege. Wages dropped on average by 25% in the private sector. In return for the approval of the loan of  €130 billion , the "troika" (IMF-ECB-EU) has asked for more wage and expenditure cuts,  while the economy is in a recession for the fifth year and the debt-GDP ratio soared to 180% with yields at unprecedented levels. The economy has entered in a deflationary spiral where further austerity produces recession and impoverishment. 

We can be pessimistic about the possibilities of  the Greek government to reimburse 14,4 billion in debt before 20 March in order to avoid a default. But what the future will bring for Greece is difficult to predict; what is certain is that the process  the EU has gone through with Greece has created a "crisis of legitimacy". The EU is dependent on the support of its citizens and if they start questioning the legitimacy and integrity of the EU then its very foundation can be compromised.  We must not sacrify our European ideals of peace, prosperity and solidarity in the name of austerity. The Greek drama will then be ours.  


  1. The Greek society has declared war to the government which has agreed to the drastic conditions imposed by the Troika. Frankly, I don't know if the Greek economy were to leave the euro area and return to the drachma will manage to survive or it will throw down in a civil war and a geo-political break up.

  2. M. Wolf wrote (FT 15.02): The reason Greece has caused such difficulty is that the country's failings are extreme, not unique. Its plight shows that the eurozone still seeks a workable mixture of flexibility, discipline and solidarity". But Eu leaders are preparing a 200 bn € debt restructuring without approving the disbursement of a new bailout funds.

  3. Finally, the Eurogroup agreed to disburse 130 billion € to save Greece from default. This will solve temporarily the problem since the objective is to reduce the Greek debt to 120% of its GDP by 2020. But, without a coordinated growth plan at the EU level, these measures might be ineffective in the medium term.