Acropolis now: Greece may be just the start

Other Eurozone countries are faltering, with far more worrying consequences

Acropolis now

Orestis Panagiotou/Keystone Press

“We are finished as a nation,” says Marko Gjini, a 39-year-old unemployed construction worker in Athens. “The country has been sold off. We have no say in anything anymore. Greece is owned by the Germans.”

Like many Greeks these days, Gjini is bitter and despondent because of his country’s financial mess, and the austerity measures that have been imposed in an effort to contain it. His wife, Aleka, a public hospital nurse, has seen her income drop from 1,200 euros a month to 800 euros. Now, facing more taxes and cuts to public expenditures, the family expects to have a net monthly income of less than 500 euros. Marko and Aleka are investing whatever money they can toward English lessons for their twin eight-year-old boys in the hope that they might have a better future somewhere else. “Let the government fall,” says Gjini, “[German Chancellor Angela] Merkel is the boss now anyway.”

Greece’s financial troubles have been accelerating since 2008, and have now reached a crisis point. Unable to pay debts accumulated through years of wild spending and financial mismanagement, covered up by blatant cooking of the books, last May the country accepted a $150-billion bailout loan from the International Monetary Fund and other members of the eurozone—those European Union countries that use the common euro currency—in return for imposing harsh austerity measures. These weren’t popular among ordinary Greeks; strikes and street protests followed. Three bank officials died in May when rioters set fire to their bank branch in downtown Athens.

The Greek government, meanwhile, missed its financial targets. Rescue loans were delayed. And the recession got worse. Facing the very real possibility of defaulting on its enormous national debt, Greece last month negotiated another bailout package involving cash and a 50 per cent “haircut” off all its privately held debt, if Greece would agree to further cuts to public spending and increased taxes.

Greek Prime Minister George Papandreou then shocked the rest of the continent when he announced he would take the proposed package to the Greek people in a national referendum. But French President Nicolas Sarkozy and Merkel—leaders of the two largest economies in the eurozone—summoned Papandreou to a meeting of the G20 in Cannes, France, and told him all bailout money would be suspended until after a referendum vote was held. What’s more, they said, a referendum on the bailout deal would, in effect, be a vote on whether Greece wished to remain in the eurozone. Papandreou backed off and dropped the referendum.

For Vaso Gildizi, a Greek freelance writer, events in Cannes were “a national humiliation for the country.” The Greek prime minister was scolded like a schoolboy and sent home. The incident didn’t sit well with many Greeks who were already sour on the bailout deal and the euro itself.

“We’re bankrupt,” says 44-year-old Vasilia Paneli, owner of Bliss, a trendy café a short walk from Syntagma Square and the parliament in Athens. “We know it. The EU knows it. And yet we continue this Greek tragedy. A referendum would at least give us a voice, a chance to speak up for our future.” Paneli was unmoved by French and German threats that a referendum on the bailout deal would have meant a vote on whether to remain in the eurozone. She’d rather Greece leave it. “It’s self-serving,” she says. “I say let’s go back to the drachma.”

This option of leaving the eurozone and reverting back to Greece’s previous currency has some traction in Greece. “Under the euro we’ve become a nation of bailout slaves,” says Stavro Tsoykalas, an unemployed truck driver who claims people were never as poor during the drachma days as they are now. He too would like to drop the euro.

William Antholis, a senior fellow at the Brookings Institution think tank, likens flirting with a return to the drachma to “threatening suicide to avoid a lynching.” Greece is in for a painful few years whatever happens, he said in an interview with Maclean’s. The austerity measures are going to bite. But leaving the euro, he says, would be disastrous. The costs could include a run on Greek banks, as people sought to withdraw euros before they were changed to drachmas. Some banks would probably collapse. Greece would likely default on its debts, and would be unable to pay pensions and salaries. Some sectors of the economy built on export might benefit from a new, devalued currency, but at the expense of much heavier blows elsewhere.

“Greece would be basically shot back into developing country status,” says Henning Meyer, a senior visiting fellow at the London School of Economics. “The economy would almost certainly collapse. It would be a very severe economic shock to the country.” But Meyer is also critical of the bailout package. Forced spending cuts will shrink Greece’s GDP, he predicts, crippling its ability to pay down its debts. What’s needed, he says, is a “European growth strategy” of targeted cuts but also investment. This isn’t on the table. Greece will accept the bailout package, he says, “because they’ve basically got a gun to their head. There are no good options left.”

Indeed, this week the Greek socialist government and opposition conservatives agreed to form a coalition government until a new election is held next year, possibly in February. Papandreou will remain as prime minister until his interim replacement is chosen. In the meantime, the coalition government will approve the bailout package, triggering the release of the now frozen rescue funds.

This won’t solve all of Greece’s problems, though. The economy will take years to recover, if it does at all. This will make Greece difficult to govern in the years ahead, as future governments will have to convince voters that austerity measures are still necessary, even as their standard of living stagnates or declines.

“If one of us were indebted to that degree and told you have to give up all the comforts that you’ve been accustomed to, and on top of that pay more out of your pocket, and maybe in 15 years you’ll see some incremental growth, there isn’t much incentive for people to work toward that goal,” says Phil Triadafilopoulos, an assistant professor of political science at the University of Toronto. “There isn’t much hope in that message. And that’s basically the message of austerity at its best.”

It’s not certain Greeks will buy in to such a deal, and solve some of the problems that have bedevilled the Greek economy and made reform so difficult: widespread tax evasion and a pervasive black market. Kostas Agas, a banker in Piraeus, a port city on the outskirts of Athens, says that even though Greeks understand the severity of the problems facing their country, many “continue to perpetuate the black money economy and the no-receipt mentality, but now it’s done in defiance of the austerity measures.”

Beyond Greece’s economic future are dilemmas about its political one—and indeed about the political future of Europe as a whole. “This is a much bigger than a question of currency. It’s a question of identity and who we are moving forward,” says Triadafilopoulos.

A generation or two ago, Greeks talked about “going to Europe,” as if the place were somewhere else. This has changed, as Greeks, especially young Greeks, embrace being part of a larger European community. But cynicism is growing among some, such as Gjini, the construction worker who believes his country is owned by Germans and run by Angela Merkel.

“The nature of the European Union is that you give up a piece of your sovereignty in return for prosperity and democracy,” says Jeffrey Kopstein, a political science professor at the University of Toronto. “That’s the bargain. If the prosperity is not there, the bargain appears to be less juicy.”

But Spyros Economides, a senior lecturer in international relations at the London School of Economics, dismisses the notion that Greece is selling its sovereignty to foreign countries in exchange for bailout funds. “This is a false dichotomy. We are a European Union partner. We are eurozone partners. We’ve also benefited from being part of this joint enterprise. And when we were on the receiving end of money and benefits, and structural funds and cohesion funds and regional funds, I didn’t hear much of an outcry then in terms of what this meant for sovereign rights and whether we were being dictated to from abroad.”

What’s most worrying about Greece’s financial crisis is that it is not an isolated one. Other countries in the eurozone are faltering, and the repercussions in economies bigger than Greece will be stronger. “Greece is a minor, minor spoke on a much bigger wheel,” says Economides.

Portugal and Ireland have both needed bailouts because of their debt problems. Now there are fears for Italy’s economy—the third largest in the eurozone—because of the country’s large debt and soaring borrowing costs for the government. This week, its prime minister, Silvio Berlusconi, finally heeded calls from political allies and opponents and agreed to step down. Along with Papandreou of Greece, he’s the second European leader to fall victim to the financial crisis in a week.

“The European project has a big question hanging over it,” says Economides. “I don’t think the European Union is in danger of collapsing right now. But you can see if the eurozone starts dismantling and falling into subgroups, and two tiers, then of course it has direct implications as to what this project actually is, and who it’s for, and what it’s going to achieve in the future.”

Already, some voters in the richer EU countries question why they should continue to bail out poorer member states. In Britain, 81 Conservative MPs defied Prime Minister David Cameron’s orders to vote against a call for a referendum on Britain’s continued membership in the European Union. And according to an October ICM poll, more Britons would vote to leave the European Union than would choose to stay in it.

“A whole dream has come into question,” says Triadafilopoulos. “Something that people were really proud of and saw as part of their identity, this European project, has been challenged at its very core. The belief in Europe as a basically positive thing and a way of moving forward into the future has been put into question at its basest level.

“Europe was established initially as a way of making sure that France and Germany didn’t tear each other to pieces a third time. The logic changed somewhat to be more economically driven. But at its core, it’s an idea that Europe is a community of European states that are united, despite their differences, according to a common allegiance to certain core principles—key of which is a commitment to liberal democratic principles and human rights. “If that project fails, then what we understand of Europe today is thrown into question. And Europe’s pre-unification history is not one that makes me optimistic. It was the centrepiece of two world wars, and prior to that innumerable conflicts, vicious conflicts that pitted European against European.”

Triadafilopoulos doesn’t expect a return to war in Europe. But he says a shared sense of what it means to be European will be lost. Until now, the trend in an integrating Europe has been toward liberal democracy. “If that trend is thrown into reverse, I don’t know what the consequences are, but I’m pretty sure they’re not good.”

But Triadafilopoulos says the crisis might have collateral benefits if it provokes debate among Europeans about what they want their future to be. Europe’s politicians, he says, will have to make a renewed case for the union. “Those who believe in Europe, they’re going to have to marshal arguments that resonate with everyday people in their respective countries, that give them a sense of the consequences if Europe is allowed to wither, because they are significant,” he says. “This may be a way of connecting Europe to Europeans.”