For Greece, 2015 Won’t Be Like 2012


No matter how the Greek drama ends, Europe and the euro will survive, writes Peter Vanham, senior media manager for the World Economic Forum, in this opinion piece.

Will Greece’s situation end up being a drama or a tragedy? With the country having stepped away from the negotiating table and its European creditors, the latter seems more likely. But Europe’s leaders may not let Greece become a kamikaze. In the ongoing crisis, the most likely outcome remains for all parties still to meet one another halfway. This means Europe would forgive a bigger part of the Greek debt, and that Greece would put itself back on track. The alternative is for Europe’s taxpayers to lose their money entirely, for Greece to spiral downwards into a deep recession, and for everyone to wish that they had dealt with things differently. Things may not go so far.

Every schoolchild knows that in life, you don’t always get what you want. This is a lesson German chancellor Angela Merkel, IMF director Christine Lagarde and others are learning from Greece’s defiant leaders. I learned the same lesson on a micro-scale a month ago, while I was walking down from the Acropolis in Athens. Thirsty from the burning sun, a vending machine filled with water bottles caught my attention. Much to my surprise, the bottles’ displayed cost was only 35 euro cents each (about 39 dollar cents) — a bargain! Alas, instead of getting a bottle for the 35 cents I signed up for, I ended up losing the full euro I put in the vending machine, as the machine failed to return any change. I overpaid for what was promised, but quenched my thirst … and moved on to discover the rest of ancient Athens.

Eurozone governments are facing a similar situation, as they are forced to strike a last-minute deal about Greece’s debt repayment. My guess is it will also be worse than what they signed up for, but will at least allow them to move on. The other option would be to get stuck, quarrel over broken promises and put the entire European project in reverse, to the period before the euro’s launch in 1999.

“Every schoolchild knows that in life, you don’t always get what you want.”

Sure enough, Europe’s stakes are gigantic. Several hundreds of billions of euros are in the game. And any deal will be a painful one for the German people as much as for the Greeks, because it will be done on the backs of European taxpayers, who own more than 60% of Greece’s debt. Twitter  But it will keep the European integration project intact and prevent the EU from going off the track it started on shortly after World War II. When faced with this choice, Europe’s leaders will know what to choose.

In part, they will know what to choose because they inflicted this painful trade-off on themselves. When European governments, the European Central Bank and the IMF bailed out Greece in March 2012, their solution was half-baked: The French, German and Greek banks, which owned the largest individual shares of Greek debt, were forced to accept a haircut of some 50%. In return, they were able to walk away from the Greek morass. The “institutions” instead took it upon to themselves to recapitalize the Greek banks and lend more money to the Greek government. The taxpayers were — and have been — left to foot any future bill.

Future Shock

As such, today’s situation is the Tale of a Crisis Foretold. As Mats Persson, director of Open Europe, a think tank, argued in 2012, “You have to be in pretty strong denial not to see how this is setting Europe up for a pretty nasty political shock. Taxpayers in Triple-A countries will despise having to see the loans they underwrote — and were promised would be returned — turning into outright losses running into the billions. For their part, the Greeks will resent having to go through years of painful austerity, only to see their country go through a humiliating and complicated default anyway.” This is exactly what is happening, and the blame, this time, should go to Europe’s political leadership.

“And any deal will be a painful one for the German people as much as for the Greeks, because it will be done on the backs of European taxpayers, who own more than 60% of Greece’s debt.”

Unfortunately for European citizens, there aren’t many leaders left to blame. Of the four key Eurozone members — Germany, France, Italy and Spain — the only head of government left in power with key responsibility for the 2012 solution, is Merkel, and she’ll get a break. Of the others, France’s Nicolas Sarkozy was defeated by François Hollande shortly after the March 2012 bailout; Italy’s technocratic Prime Minister Mario Monti of 2012 was replaced first by Enrico Letta, and then by current PM Matteo Renzi. And Spain’s Mariano Rajoy, though he was already in power in March 2012, had only assumed office three months earlier and was heading a Spain that had limited leverage, since it was facing a full-blown economic crisis itself. Yet if it is hard to reach a deal today, it’s mostly because the current generation of leaders is more concerned with explaining a possible deal at home than striking one at the negotiation table.

I realized as much while reading the Spanish newspapers during the past few months. Indeed, in Spain, the incumbent Rajoy of the conservative People’s Party, is facing re-election at the end of the year, and the party he fears most is Podemos, the leftist, anti-establishment lookalike of Alexis Tsipras’ Syriza in Greece. For Rajoy — and for Spain’s mainstream media such as the nation’s leading El Pais newspaper — the debt negotiations with Greece are like a proxy for the upcoming political fight with Podemos. Day after day, the country’s newspapers and broadcast media talk about mostly two topics — the Greek crisis in their international coverage and Podemos in their national coverage.

In that regard, it might seem enticing for Rajoy and the leaders of Italy, France and others, to play hardball on Greece. After all, it is clear that the economic and financial situation in their home countries is very different from 2012. Then, Italy, Spain, Portugal and Ireland were almost certain to be the next dominoes to fall, in case Greece collapsed. The spread of their respective 10-year government bonds was skyrocketing to similar heights as that of Greece, economic growth was non-existent, and unemployment was at all-time highs. But now, that is no longer true.

“As the Greece’s largest individual lender, and the only remaining economic powerhouse in the EU, it’s the German perspective that will decide Greece’s faith.”

Walking around in Spain, you can feel the mood has changed. The economy is set to grow at 3% or more, unemployment is falling, and hope has returned. Most importantly, though, the idea of contagion has all but disappeared from the markets. Spain, Italy, and France all have spreads on their bonds of lower than 3% compared to the German bonds.

At the same time, the Greeks are fed up with any more cuts in their pensions or hikes in their taxes. Dimitri, a Greek restaurant owner I spoke to while there, had made up his mind: “Why would I pay any more taxes, and live under the burden of debt any longer?” he asked me. “I’m fed up. I would rather go back to my village and live a quiet life for the rest of my days.” It was hard to disagree with the man, as I was having a delicious feta salad in his restaurant, under the blue skies and the Greek summer sun. The Greeks’ financial prospects in case of default may not be bright, but their Mediterranean lifestyle remains attractive regardless.

Yet, in the end, with the stars seemingly aligning to let the Greeks walk out of the eurozone, it will be Germany’s interest that ultimately will take the upper hand. And that interest remains, when push comes to shove, that there is no greater interest than the common European interest. As Greece’s largest individual lender, and the only remaining economic powerhouse in the EU, it’s the German perspective that will decide Greece’s faith. And while the Germans may not like drama, they like tragedies even less.

About the author: Peter Vanham is a senior media manager for the World Economic Forum. He is based in Brussels, Belgium. The views expressed in this opinion piece are his own and not those of any organization with which he is or has been associated.


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