Tag Archives: Greece eurozone

Is Greece drowning in Europe’s fruit salad?

Illustration by Manos Symeonakis

“Europe is like a fruit salad,” says Frank Schwalba-Hoth, perched on the edge of his seat at the European Parliament’s cafe in Brussels. Normally, our surroundings would be a hive of activity but this week the MEPs have buzzed off to Strasbourg, the Parliament’s other home. But even if there had been a throng of politicians from the 27 member states around, the topic of discussion — Will Greece survive? Will the EU survive? — would have been too absorbing for us to notice.

Schwalba-Hoth, a German politician who was a founding member of the country’s Green Party and served as an MEP in the 1980s, is engaging company. He now works as a networker and consultant in Brussels and his knowledge of the workings and history of Europe’s institutions is unrivaled. He believes the Greek debt crisis and the threat it poses to the euro is just the latest in a long list of challenges that the EU, which traces its roots back to the European Coal and Steel Community founded in 1951, has faced in its long history.

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EU should invest in Greece, not just lend it money

Brussels – A restructuring of Greece’s debt or a second bailout from the European Union and the International Monetary Fund coupled with austerity measures and structural reforms will not be enough to ensure the country’s long-term economic future, according to the chief economist at a leading Brussels think-tank who is urging the EU to generate greater investment in the debt-ridden country.

“The key here is to create a positive economic and political future,” Fabian Zuleeg of the European Policy Centre told Kathimerini English Edition. “It is abundantly clear now that simple austerity measures are not enough: they are not going to lead the Greek economy to a higher growth path. If we want to give economic and monetary union a long-term perspective than we need to find vehicles to channel investment from the stronger countries to the weaker countries: true investment, not a transfer – something that will give returns.”

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Greece, land of pain and joy

Illustration by Manos Symeonakis

There are rare moments when a thread of togetherness winds its way through a country to lift its everyday burdens. Sometimes, these moments are born from political, sporting or other types of victories. But victories tend to bring out the worst as well as the best in people. It’s usually moments of grief or sadness that stoke the purest of emotions, creating a fleeting sense of community before it’s sucked into the morass of daily stresses and strains.

Greece experienced such a moment last Sunday when the death of singer-songwriter and musician Nikos Papazoglou was announced. He was an unassuming man who made rare public appearances and dodged the media spotlight. The reaction to his death was a reflection of people’s love for his pure and passionate music, but it was also a sign of respect for Papazoglou the human being: as an artist he shunned commercialism and stayed true to his values and as a man he remained humble and generous despite his fame.

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The wrong battle

Illustration in linocut by Manos Symeonakis

“There is no Greek-German war,” government spokesman Giorgos Petalotis said last week. “Greece and Germany are not on collision course,” said Foreign Minister Dimitris Droutsas. All these statements can only mean one thing: Greece and Germany are very much at loggerheads. But their dispute is not just a bilateral squabble; at its heart it’s about divergent views on how to respond to the crisis threatening the euro and, beyond that, on the very purpose of the European Union.

The frantic attempts by the government to play down any rift between Athens and Berlin came after Greek Prime Minister George Papandreou decided on November 15 to dust himself off, stand on the ruins of the Greek economy and hit back at German Chancellor Angela Merkel with a rebellious passion. Speaking in Paris, Papandreou accused Merkel of driving up bond yields for weaker eurozone members by insisting that private investors should foot part of the bill for a permanent mechanism to support countries with failing economies, like Greece’s. “This could create a self-fulfilling prophecy,” said Papandreou. “This could break backs, this could force some economies into bankruptcy.”

On the face of it, there seems little wrong with Merkel’s insistence that private bondholders should accept losses, or a “haircut,” on their investment as part of a debt crisis mechanism to be adopted by 2013. Most Europeans would accept that this would create a fairer system although, clearly, German taxpayers would benefit the most as they’re the ones who would be called on more often to bail out failing eurozone members. But the self-serving element to Merkel’s position is not what should be of most concern to Europeans. Instead, it’s the way Berlin has tried to steamroller other EU countries into accepting the inclusion of the “haircut” clause ahead of a decisive EU leaders summit in Brussels next month. It’s this lack of consultation and the absence of consideration for struggling eurozone members that is undermining the Union.

Papandreou argued that making such a big fuss about investors having to pay their share simply gave jumpy bondholders a seriously aggravated case of the jitters, pushing up the yields on government bonds for Ireland, Portugal and Spain to dangerous levels. Few EU leaders backed Papandreou openly but there is great concern about Germany’s stubbornness. “When the history of the eurozone is written, last month’s German-driven EU summit agreement to devise a crisis resolution mechanism for countries to service their debts may well be cited as the event that pushed Ireland over a cliff,” Bloxham, Ireland’s oldest stocbrockers, said last week, a few days before Dublin turned to the EU and the International Monetary Fund for emergency loans.

In Germany, though, there is a different view. “If Merkel were to abandon her plans, then it would be paradise for investors and weak governments,” wrote the Suddeutsche Zeitung newspaper last week. “The speculators could charge higher interests on Irish or Greek bonds without any risk of losses. And the Greeks could continue with their record indebtedness because they would have no more pressure from the financial markets and in an emergency would be rescued by their euro partners.” However, this ignores that when Greece tries to go back to the international bond markets in 2013, its borrowing costs will be pushed up anyway, as investors will be wary of having to take a haircut should Athens have to revert to the permanent EU mechanism for further loans.

The Greco-German dispute is symptomatic of the differing views emerging within the EU about how to combat the debt crisis. There is a tendency for the EU to speak with two voices and to pull in two different directions. “The euro, which was supposed to make European integration irreversible, could become its undertaker,” wrote the Frankfurter Allgemeine Zeitung daily last week. Every day the debt crisis gnaws away at the EU’s confidence, making the Union seem an exhausted shadow of its former sprightly self. This dissipation of energy and will is leading to division and, whether through bad luck or design, Merkel is at the forefront of creating ever-deeper rifts.

Speaking at a rally of her Christian Democratic Union (CDU) in Karlsruhe on November 15, the same day that Papandreou challenged her scheme for private investors, Merkel said her predecessor as chancellor, Social Democrat Gerhard Schroeder and his Finance Minister Hans Eichel had blundered when they allowed Greece to join the eurozone. “In 2000, Schroeder and Eichel couldn’t let Greece join the euro fast enough and they ignored all the warnings,” she said. “It was a political decision… political decisions are important but those which ignore the facts are irresponsible.”

It’s now obvious that Greece was not ready in 2000 to stick to the single currency’s fiscal guidelines, as prescribed by Germany. It’s also clear that allowing Greece into the eurozone was a political decision — one aimed at giving the nascent single currency numerical, if not necessarily economic strength, but also the opportunity to encourage economic reform and German-style efficiency in a sluggish European state. A decade ago, it was a convenient political decision for Germany — Greece, after all, became another market in the eurozone for its exports — but now it’s a terrible inconvenience for Berlin. But that’s the thing about political decisions: You take a risk. Sometimes you ignore the facts because you have a conviction that something greater is at stake, even if the numbers don’t back you up.

Merkel might consider, for instance, that the Marshall Plan, which ensured Germany’s post-war reconstruction and helped it become the economic powerhouse it is today, was a political decision. The United States, which led the effort, could have decided that paying to help rebuild Germany did not make economic sense but Washington chose to look at the bigger picture — the opportunity to fight “hunger, poverty, desperation and chaos” as US Secretary of State George C. Marshall said when he unveiled his plan in June 1947. Using words that are eerily relevant to today’s Europe, Marshall said: “The United States should do whatever it is able to do to assist in the return of normal economic health in the world, without which there can be no political stability and no assured peace.” Peace in Europe is not under threat in 2010 but the EU’s faltering economic health is putting its unity at risk.

While leaders argue over bond yields, haircuts, bailouts, deficit and debt, one very important factor is being overlooked. As was the case in the Europe of 1947 before the Marshall Plan, it’s the people that are suffering. They are the ones that pay the cost of failed economic policies and soaring bond yields — people who have fulfilled the wishes of politicians and bankers by mortgaging their futures to buy houses and cars and who believed the euro would bring the permanent stability they were promised. This is why unity must be restored.

Somewhere between Papandreou’s rebelliousness and Merkel’s intransigence, we’ve forgotten that the EU and its institutions were created to improve people’s lives. Many of these people are now losing their jobs, homes and hope. That’s why, even though Greece and Germany may not be at war, their dispute is confirmation that Europe is fighting battle, but the wrong one.

This commentary was written by Nick Malkoutzis and was published in Athens Plus on November 26, 2010.