The EU's Future in the Wake of the Greek Crisis

AP Photo/Daniel Ochoa de Olza

A man sells Greek and European Union flags during a rally organized by supporters of the YES vote for the upcoming referendum in front of the Greek Parliament in Athens, Tuesday, June 30, 2015. 

The endgame in the Greek crisis remains murky at this hour despite Alexis Tsipras’s apparent capitulation to the demands of Greece’s creditors: the so-called Troika or “Institutions” consisting of the International Monetary Fund (IMF), the European Commission (EC), and the European Central Bank (ECB). With surprise developments occurring daily if not hourly, it is difficult to stand back from what has transpired to date in order to assess the implications for the future of the European Union and the Eurozone. Still, the exercise is worth attempting. A number of depressing conclusions emerge.

No matter how the saga ends—whether in “Grexit” (Greek abandonment of the euro) and the self-imposed austerity that must inevitably follow, or in an agreement with the creditors to accept austerity on their terms, or in some intermediate and almost unimaginable limbo in which Greece remains in the Eurozone but without external financial support, which Tsipras’s alter ego seems to be calling for with his recommendation of a ‘no’ vote in Sunday’s referendum—the course of the negotiations, recounted here (in French and considerable detail) by the excellent Greek political scientist Gerassimos Moschonas, has demonstrated a remarkable combination of intransigence, incompetence, and insensitivity on both sides.

The Troika bears the lion’s share of responsibility for the bitter deadlock. It has clung tenaciously to the doctrine of “expansionary contraction” promoted by economist Alberto Alesina, despite research by the IMF itself suggesting that it seldom works. It has resisted the judgment of numerous economists, including former IMF head Dominique Strauss-Kahn, that too much of the burden of adjustment was imposed on Greece and too little on the creditor countries that profited from excessive lending and whose banks were bailed out in 2010 at the behest of Strauss-Kahn himself. It has pretended that Greece will some day pay back its debt, when this is merely a political fiction aimed at reassuring voters in creditor countries that they will not eventually have to pay what Greece can’t. As Daniel Davies puts it: “Everyone knows [Greece’s debt] is going to be restructured at some politically convenient time in the future; it simply can’t be paid back, and so it simply won’t be.” Finally, the Troika has attempted to micromanage the Greek economy from afar, placing too much emphasis on slashing salaries and benefits while paying too little attention to measures that would promote growth.

The Troika has compounded this economic obtuseness with a remarkable display of political insensitivity. To be sure, the Greek people elected the Syriza government in January with a contradictory mandate: voters told their government to remain in the Eurozone but to mount an all-out assault on the austerity policies imposed by institutions with the power to force Greece out. Yet at the first sign that Greek Prime Minister Alexis Tsipras was prepared to make the hard compromises necessary in any tough negotiation, German Finance Minister Wolfgang’s Schäuble oozed contempt: “The Greek government will certainly have difficulty explaining this to its voters.”

Germans should remember their history. The hyperinflation they often invoke as justification for their aversion to debt stemmed from a similar failure of magnanimity on the part of the more powerful parties in the negotiations over reparations after World War I. Small gestures of generosity on the part of “the Institutions” might have gone a long way to alleviate the mutual distrust that has poisoned these talks. Instead, the Troika chose to insist on further pension cuts on top of those already approved by previous Greek governments, refusing to spare even pensioners at the bottom end of the scale. IMF Chief Economist Oliver Blanchard observes, rightly, that pensions account for 16 percent of Greek GDP, implying that the Troika had no choice but to go where the money is, but the appearance of vindictiveness and indifference to the suffering of tens of thousands of people remained. Obliging one’s adversary to commit political suicide by betraying all his electoral promises is not likely to elicit a productive response or blaze a path to agreement.

On the Greek side, according to Euklides Tsakalotos, who replaced Finance Minister Yanis Varoufakis as head of the negotiating team, the intention was “deliberately to create uncertainty.” Previous governments, he insisted, had been too eager to declare that they would never abandon the euro, thus hamstringing their negotiators from the start. But if the Troika lacked magnanimity, Syriza lacked agility and finesse in pursuing this strategy of deliberate ambiguity, making concessions with one hand and provocative gestures with the other.

It was not just small cosmetic matters, such as the chilly reception accorded to Eurogroup Chief Jeroen Dijsselbloem when he flew to Athens immediately after the election. Greece entered the negotiations as the weaker party. Its best course would therefore have been to try to exploit differences within the Troika. Moschonas points to the desire of Jean-Claude Juncker, the new president of the Commission, to increase his own autonomy and therefore to part company with other players. Following the breakdown of negotiations, Michel Sapin, the French finance minister, has made numerous public statements at odds with those coming from Schäuble and German Chancellor Angela Merkel. Although it is difficult for anyone not privy to the details of the talks to know for sure, these expressions of disagreement suggest a less monolithic Troika than one finds in some accounts—differences that a more adroit Greek side might have exploited. In fairness, they may well have tried such an approach and failed. In any event, it became evident that hostility to Greece within the Eurogroup increased rather than diminished as the talks progressed.

The economist James Galbraith, who possesses far better information about the negotiations than I do, wrote yesterday that Europe’s “sheltered” leaders have failed to figure Tsipras out. That may be, but Tsipras certainly hasn’t made their task easy. On June 30 he submitted a letter to the Troika accepting, with certain amendments, the “staff level agreement” he had rejected just days before. Not only did he accept it, he went out of his way to say that “our amendments are concrete and they fully respect the robustness and credibility of the design of the overall program” (emphasis added). But the next day a very different Alexis Tsipras went on TV and bitterly denounced “the creditors’ blackmail,” describing his adversaries as “extreme conservative forces” and calling for a ‘no’ vote on Sunday’s referendum, whose purpose is ostensibly to accept or reject the “overall program” he had seemingly approved the day before. Such mercurial changes of tone and substance may be a deliberate feature of his negotiating style, intended to maximize the uncertainty whose tactical value Tsakalotos stressed, but they are hardly of a nature to inspire confidence in a situation where trust that the government will follow through on its commitments is the central issue.

What does this acrimonious history reveal about the current state of the EU? First, it has become increasingly apparent that a monetary union without a more robust political union will be hard put to avoid further clashes between the ill-defined central authorities in this confederation without a constitution, and member states uncertain of where the limits of their sovereignty lie. The Troika is not a formal institution. It is an ad hoc committee, torn by invisible internal force fields, which conceals underlying interests more than it represents them. Hence it gathers about itself accusations of the darkest conspiracies. It is alleged that its true mission is to promote neoliberal hegemony, to snuff out democratic expression, to prevent the emergence of leftist parties in Europe, or to destroy any country that steps out of line in order to keep a tight leash on the rest. Such allegations are made as if they required no substantiating evidence, and they cannot be refuted because the Troika’s essential business is to engage in the kinds of discussions that in a properly functioning polity would properly remain private. It is a technocratic rather than a democratic institution, but in certain ambiguous ways it is answerable to heads of state, to the European Parliament, and to the European Council. It is a hybrid beast, a disquieting chimera. This needs to be changed.

The current negotiations have also called attention to the unsavory politics of resentment created by European enlargement. Following the collapse of the Soviet Union, a number of former Eastern bloc states entered the EU. Many of these new member countries are poorer than the original core states and, indeed, poorer than Greece. A major obstacle to flexibility in handling the Greek debt has been the resistance of these relatively poor new members to anything they construe as special treatment of Greece. Yes, they say, there is suffering in Greece, but our pensioners live on even less. Hence there is a refusal of compassion and a revival of the very national jealousies and animosities that the EU was meant to contain. This must be combated.

Finally, the IMF has no business in Europe. It was Wolfgang Schäuble who pressed this point forcefully when the subject was first broached, but Chancellor Merkel insisted on the need for an institution with the staff and expertise necessary to oversee a distressed economy and to specify and enforce conditions on financial support. She got more than she bargained for. The IMF, and especially its European Department director Poul Thomsen, have proved to be the most rigid of the creditors. Europe is wealthy enough to repair its own house, if only it can muster the political will and social solidarity to do so, and it should not allow itself to be distracted by the interests of developing nations on the IMF board, whose resistance to special treatment for Greece is even stiffer than the resistance from within the EU.

The European Union is at present being sorely tested on several fronts. Its response to the refugee crisis has been so dismaying in its lack of solidarity and compassion that Italian Prime Minister Matteo Renzi told his colleagues at an EU summit that “if this is your idea of Europe, you can keep it.” Terror attacks in Paris and Copenhagen and an ISIS-style beheading in a suburb of Lyon have stirred anti-Muslim sentiment across the continent. Xenophobic parties stand high in the polls in several countries. In France the extreme right Front National has made the EU a target of predilection, taking the plight of Greece as an object lesson. What is being done to Greece, Marine Le Pen tells her acolytes, is also being done to you. She claims she will restore full sovereignty over France’s economy.

But French voters are no more eager than Greek voters to leave the EU. They just want a different EU, an EU more responsive to human needs and less preoccupied with accounting spreadsheets. Hence the failure of “the Institutions” to find a more creative response to the comprehensible and legitimate demand for something other than “expansionary austerity” poses a threat to the entire European project and its increasingly elusive promise of “ever closer union.”

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