Still alive but is the Greek economy kicking?
December 20, 2015
Casual observers of the Eurozone scene might be forgiven for believing that the worst of Greece’s economic woes are behind it. Nothing could be further from the truth. Sadly neither is out of sight or out of mind as events in Portugal, and potentially in Spain amply attest.
Excitable commentary in June suggested that finally, but finally Grexit was upon us. However whilst Greece had seemingly exhausted all options (not to mention the patience and cash of its Eurozone partners) at the eleventh hour yet another deal was cobbled together to kick the can further down the road. Newly re-elected Prime Minister Alexis Tspiras ended up agreeing to a third bailout on even more stringent terms than he had rejected before calling a near farcical referendum, which had itself firmly endorsed that stance. The Greek Syriza movement’s radicalism has been snuffed out under the weight of Eurozone orthodoxy. The ugly constitutional stand-off following October’s Portuguese election shows that no avowedly anti-austerity governing coalition will smoothly assume office, or be permitted to implement its programme regardless of the voters’ wishes, until the institutional apparatus of the single currency is established.
As ever, the wheels of EU/Eurozone bureaucracy seem set to meander slowly onwards, taking all too little account of the realities on the ground. Spain’s General Election takes place this Sunday (20 December), but as with its Iberian neighbour, many voters there have little cause to believe the ECB propaganda that its financial crisis is over and that the Spanish economy will remain on the road to recovery simply by sticking to the austerity script. What remains painfully lacking is sustainable economic growth – stagnation at a time of high historic debt, and the prospect of deflationary forces, represents a toxic mix that threatens democracy as well as the European economy.
A myth has taken root that such growth will come once Eurozone members get their public finances in order and undertake reforms towards creating leaner, more dynamic states. What should worry us all, however, is that growth remains elusive for the one Eurozone economy that has already ticked those boxes. Finland sits at the very top of world league tables for competitiveness, education, commercial legal rights and innovation. If Greece wears the dunce hat, Finland is the Eurozone’s model student. Nonetheless, demand is growing from Finns for a national referendum on withdrawal from the single currency – so-called ‘Fixit’ – after three years of economic contraction. The Euro was sold to Finns as the ultimate defence against its looming Russian neighbour, but the Finnish economy has been performing worse than any other Eurozone nation, contracting six per cent since 2008 while its Swedish neighbour (sitting comfortably outside the currency zone) can boast of eight per cent growth in the same period. No amount of reform, according to the new Finnish coalition government, can apparently make up for the damage inflicted on exports by high labour costs and a fixed exchange rate.
Then there is Italy, still by some margin the EU’s fourth largest economy. The dynamic economy and constitution reforming centre-left premiership of Matteo Renzi had at first won over the confidence of Italy’s business leaders and financial community and by mid-year there were clear signs of recovery, especially in its more liberalised employment market. The direct impact of the migration crisis on its southern shores and the emboldening of the left-wing of Mr Renzi’s party at the populist anti-austerity revolts elsewhere in the Eurozone now threaten to push him off course.
With such widespread uncertainty abounding it would probably be unwise to predict with any conviction just how the Greek situation will play out. Remarkably, an albeit diminished Mr Tspiras remains at the helm and just possibly all is not lost. However, Greece’s creditors, whose patience was at breaking point and many of whom had probably discounted their losses as the farcical referendum played out in June, will need to be convinced that Syriza #2 is serious about governing for the long haul. Only then will recapitalisation of Greece’s beleaguered banks be guaranteed along with inclusion in the ECB’s quantitative easing programme and a restructuring of the country’s debts, allowing markedly longer repayment terms.
How will the Greek government use the breathing space it has been granted? There is no necessity for large scale repayments of the latest bailout until July 2016, which should until then at least silence talk of a Grexit. Austerity will continue, interest groups (of the elderly and its rural communities to name but two) will draw new battle lines and crisis fatigue may also set in.
Commentators have continued to struggle to explain why the Greek economy has been such an acutely unique problem. One view, favoured by economists and bankers, is that Greece was always a special case – it should never have been allowed to join the EU as early as 1981 especially with the Cyprus issue unresolved (as it is to this day despite all the recent hopeful signs of progress) and an utterly unreformed economy. Its then leaders, rather like those in Romania and Bulgaria in the run-up to their accession in 2007, saw linking up with Brussels as the road to salvation to ‘save Greece from itself’. Unlike every other country requiring a bailout, no Greek government has ever properly accepted the urgent need for internal reform.
The alternative interpretation, favoured by left-leaning journalists and Eurosceptic commentators, is that Greece’s recent travails are the fault of outsiders. In particular the loathed troika – the ECB, European Commission and the IMF – who imposed a grotesquely unfair straitjacket upon the Greek economy and subsequently pour encourager les autres have insisted that austerity be prolonged irrespective of the utter misery to millions of Greek citizens. Regardless of the Greek people’s democratic wishes, the Frankfurt and Brussels elite were determined to show that Greece’s euro membership was incompatible with the anti-austerity message of the twice-elected Syriza party.
The one key feature that these two interpretations have in common is that they ignore any responsibility that the Greek people had, or should have had, for their own fate. In truth a succession of Greek political leaders has failed to display the statesmanship of levelling with the electorates and persuading its population of the need for reform in the modern, outward-looking globalised institutional world to which Greece aspires to belong.