Tag Archives: PIGS

A sum of parts

Ilustration by Manos Symeonakis

“The antidote for 50 enemies is one friend,” Aristotle said and goodness knows how Greece could use that friend right now, as it stares at those disgruntled European faces across the table.

The closest it has come to finding a friend among them is French President Nicolas Sarkozy. The warm embrace he offered Prime Minister George Papandreou in front of the cameras in the Paris drizzle last week was symbolic. He was telling the other Europeans it was time to close ranks around Greece and protect it from itself and, more pressingly, from the destructive nature of international speculators. Sarkozy also reportedly contacted German Chancellor Angela Merkel before the Brussels summit to discuss the possibility of offering Greece concrete assistance.

It’s not the first time that Sarkozy has come through for Greece. At the NATO summit in Bucharest in 2008, he rallied the other major powers to prevent the Former Yugoslavia Republic of Macedonia (FYROM) joining the alliance due to its failure to resolve its name dispute with Greece. The same year, Sarkozy visited Greece, the country from which his maternal grandfather – a Jew from Thessaloniki – emigrated. He became one of only a handful of foreigners to address the Greek Parliament, giving a speech that drew its inspiration from the decades-old slogan of “Greece-France-alliance” but which also contained moving references to his grandfather.

Many Greeks believe their country is worthy of this form of personal relationship with other EU countries. They pine for a union in which their northern neighbors are not obsessed with numbers but show understanding for their often erratic behavior. Greeks would like their European partners to display respect for the country’s history and traditions – we may be crafty devils now but we were once philosophers and poets and our continental cousins should not forget that.

What the last couple of weeks have shown, though, is that in times of crisis, there is little room for personal sentiment. Greece has broken the rules and for all its insignificance on Europe’s economic map, its irresponsibility is threatening to blow the whole show sky high. Ancient gods will not save Greece and the EU now, only some very contemporary fiscal belt-tightening and possibly even financial aid can rescue the situation.

Yet, for all the numbers, indices and percentages that govern Greece’s current relationship with the EU and the European Commission, the country’s headlong plunge into fiscal crisis also poses some profound questions about the Union’s future. While Greeks may deserve to be castigated for their mendacity and incompetence, there is a point at which the EU must decide how to support Greece, unless the very unity and stability of the bloc is not to be put at risk. An unprecedented set of events have brought the EU face-to-face with a dilemma that will define the nature of the Union itself. France’s former Culture Minister and another long-time friend of Greece, Jack Lang, suggested as much last week: “Europeans have a unique opportunity to prove the deeper meaning behind the European Union,” he said. “For our love of Greece, out of our respect for Greek civilization but for Europe itself, we have to act.”

The immediate question for the EU is what form this action should take. For the time being, the eurozone countries have settled for declaring political support for Greece while asking the PASOK government to adopt austerity measures. Both are designed to deter hedge funds and other speculators while bringing the Greek economy within the euro’s deficit and debt boundaries. “This is the worst imaginable punishment for a nation but it is also a consequence of being a member of the European community,” wrote the Suddeutsche Zeitung daily in Germany. “It is only in times of crisis that you see what a system is capable of.”

Also in times of crisis, those who support bold action are usually in a minority: an Emnid poll indicated that 71 percent of Germans oppose giving financial aid to Greece. As the conservative Frankfurter Allgemeine Zeitung put it: “The Greeks are taking to the streets to protest against increasing the retirement age from 61 to 63. Are the Germans now supposed to work until 69 and not 67 so the Greeks can enjoy early retirement?”

Merkel, backed by the Frankfurt-based European Central Bank (ECB) and its president Jean-Claude Trichet has so far rejected a solution that would involve lending money to Greece, arguing that this might stop the government from taking tough measures. The German chancellor instead points to Ireland, which restored market confidence through a program of drastic spending cuts and reductions in public sector wages and pensions. Berlin also argues that a German constitutional court would block any attempt to bail out Greece as this is not permitted under the terms of the Maastricht Treaty that set up the single currency.

They would be valid arguments under normal circumstances but we live in extraordinary times – times in which the dithering of governments, the like of which allowed Bear Stearns and Lehman Brothers to collapse in the fall of 2008, comes at a heavy price. The failure of Washington to act then proved disastrous and very costly. Other governments, including many in the EU, learned from this mistake and pumped billions of euros into the financial system to prevent its collapse.

They now face a similar situation but this time it’s a country, not a financial institution, in danger of going under and pulling others with it. As Jean-Claude Juncker, the Luxembourg Prime Minister who heads the eurogroup said this week, if Greece were forced out of the euro, “the effects would be like an earthquake, uncontrollable.” With the other so-called PIGS (Portugal, Ireland, Greece and Spain) economies suffering problems, Juncker, Merkel and the other EU leaders would do well to absorb the implication of a Greek default, rather than just keeping their fingers crossed it won’t happen.

The threat of contagion means it’s impossible to support the argument that taxpayers in one EU country should not be footing the bill for the economic failure of another. Taxpayers in Britain and Germany had no choice about whether their money was used to keep banks afloat last year – they simply had to accept this was the wisest long-term option.

If the Maastricht Treaty, signed in 1992, does not allow for a bailout then it should be altered. The financial landscape has been reshaped beyond recognition over the last two decades and the EU’s institutions and mechanisms need to catch up.

Also, Greece is not Ireland and cannot be expected to adopt the same measures when there are clear, chronic structural problems that need to be addressed first. Masking this with tax hikes and public sector salary cuts will fool no speculator worth his fat-cat bonus.

The EU has given Greece a month to prove that it can get its economy back on track but the Union has to use this time to consider its own role as well. The Greek crisis is questioning the very purpose of the EU, whose strength has always been, as Aristotle also said, that “The whole is more than the sum of its parts.” But what Europe must now consider is that when one of those parts collapses, the whole is not worth very much at all.

This commentary was written by Nick Malkoutzis and first appeared in Athens Plus on February 19, 2010.