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Europe, Grexit and Terminus

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Time and money run short for Greece. The submission of a new reform package to the Eurogroup has not made much impression; no one has bothered to schedule an earlier meeting than the one already planned for 11 May. Mr. Tsipras has had to work hard to put together even this modest list, with a revolt by the left-wing of his own party threatened by Panayotis Lafazanis, who wishes to give no ground whatsoever to Greece’s creditors. The situation is dire enough that Finance Minister Yanis Varoufakis has had to fly to Washington to reassure the IMF’s Christine Lagarde that Greece would be able to make a 450 million euro payment this week. How many more weeks of payments the cash-strapped government will be able to make is the question that may decide Europe’s fate.

debtmaturity

At this point, the leaders of the European Union have convinced themselves that a Greek default and exit from the Euro would be manageable, that there would be no contagion. They are so convinced, that they view it as a lesser evil than the continuation of Syriza in power: or at least a Syriza that has not been humiliated and visibly, publically subjugated to the authority of Brussels. The current crisis is a product of that; while the narrative has been that the Greeks brought this on themselves by playing foul and refusing to implement the necessary reforms, it rings hollow. No European state has implemented the full range of reforms that were called for, with big states like Italy and France implementing almost no reforms at all. Nor has Greek intransigence caused the prolongation of the conflict; the Greek negotiators almost immediately pulled in their horns on every issue except for a request for greater fiscal flexibility in order to stimulate their economy. That is very far from a “radical leftist” position, it is pure Keynesian orthodoxy.

There can be no doubt that the Eurogroup is focused exclusively on the political challenge posed by Syriza as the first and most visible “rejecters” of the post-crisis order. It has nothing to do with international finance or economics; it is an interstate hatchet job.

  • It should have been obvious when German Finance Minister Wolfgang Schäuble publically refused to consider any flexibility in the current bail-out terms even before the first meeting with the new Greek government[1] [2]. He wanted a capitulation, unconditional surrender; not a negotiation between “fraternal EU partners” or whatever they call themselves in public. Renegotiation of the terms of the original agreement should not have been either controversial or unwarranted, considering how scandalously wrong the EU and IMF projections for Greek recovery and employment were at the time of the bail-out. At least the IMF had some shred of conscious left to it when it publically admitted that it might have been “a little high” on the Greek growth estimates;

greekburden

  • It should have been obvious when, after being verbally browbeaten in Brussels, the Greeks were told to come back with new, more comprehensive reform proposals over a weekend in February[3] in order to win a four month loan extension, even though they had been in power for less than a month and some ministers didn’t even have a full staff yet. Of course time was short; but it was fully in the power of the Eurogroup to heed the call of the IMF and to be “flexible” with Greece. That could have extended to giving them more time to put together a complete plan, but this was not the desired outcome;
  • It should have been obvious when the head of the Eurogroup, Jeroen Djisselbloem, publically speculated that Greece might have to introduce capital controls at the precise moment that the run on Greek bank deposits appeared to be waning[4]. It is akin to shouting “fire” in a crowded theater with similar results: deposit flows picked up again to the levels the Eurogroup desired. Such odious and deliberate sabotage ought to have made a bigger stink – surprisingly few commentators made much of it – but perhaps people have become jaded since the same tactic was used by the same finance ministers to enforce the Cypriot acceptance of their diktat;

depositflight

  • It is patently obvious when the Financial Times[5] is openly reporting the “private suggestions” of “some” EU finance ministers that a new bailout agreement is only possible if Syriza jettisons its “radical left” members and gets into bed with PASOK. In other words, Syriza must stop being Syriza and must join with the corrupt, ineffectual but safe party – from a European point of view – that forms part of the old boys’ club of European governing elites. Then, and only then, Mr. Tsipras will be allowed to remain in power (assuming he can keep it) as he will have been co-opted; however “Quisling” translates into Greek.

There is the Eurogroup agenda laid bare: push Greece all the way to the edge and over, if need be. If Tsipras bends before falling off the cliff, fine: he will do so on terms that will completely undermine Syriza in the eyes of its supporters and ensure a short, stormy stay in power. If he hews to his principles and his electoral promises, fine too: Greece will be forced into default and the damage of Grexit will be managed. Either way, it will be demonstrated to all Europeans that the siren song of Syriza is self-destructive and that the current program is the only program.

djisselbloem

Mr. Tsipras meanwhile is attempting to play his own “nuclear card” in a trip to Russia scheduled for this Wednesday[6]. Ostensibly, this is to show Greece’s partners that there is a Plan B available; so don’t push too hard or we might take it. Unfortunately for Mr. Tsipras, this is a chimera, and everyone knows it. The Russians are not in a position to grant Greece the levels of assistance the nation requires, it would be an enormous drag on their already shrinking foreign exchange reserves. With a 5+1 nuclear deal promising to flood the market with Iranian oil by early next year, the Russians are unlikely to get much relief in terms of resurgent oil prices. Meanwhile competition with the West demands high levels of military spending, which eats in to the Kremlin’s budget; there will be little or nothing left this year for Greece. Additionally, the Russians want to split the Europeans over sanctions and Ukraine, it is true; but too direct an assault on a “domestic matter” may end up unifying rather than dividing their opponents. Finally, Greece is only useful to Russia so long as it is inside the Union; should it leave or be forced out, it will become a burden, a closer Cuba, which will need to be cut off sooner rather than later. There is no Plan B in Moscow for Mr. Tsipras. 

 It remains an open question whether the Eurogroup’s efforts will be successful or even necessary. After all, the rise of anti-EU parties in other nations, like the Front National, the Five Star Movement, UKIP and Podemos – all respond to very different, domestic motives that cannot be exported across borders. The success of Syriza does not necessarily help or hinder Spain’s Podemos; the continued hapless blundering of the governing Partido Popular, stumbling from one gross corruption scandal to another, is far more important for Spanish voters. Europe’s ham-fisted treatment of the Greeks might even be counterproductive, as both UKIP and Marine Le Pen’s Front National are both infused with a euroscepticism that will only see confirmation of the undemocratic and bureaucratic nature of the Union in the image of a humiliated Greece with her sovereignty trampled upon.

The belief that “Grexit” can be managed is also questionable. Monetary unions, unless fixed to gold, are dependent on an act of faith by the citizens of those unions and their creditors, that those little bits of paper and the government promises behind them actually mean something. As soon as exceptions start being made, belief wavers. The initial Greek haircut, the Cyprus bail-in: these events were initially “inconceivable” in Europe…until they happened. A Greek exit was also, similarly, inconceivable; and should it happen, there will be a price to pay. Europe may be able to hold it together, perhaps for years, but it will open a yawning chasm beneath the Eurozone that will not go away. Other nations may be forced to fall into it by economic or political circumstance. Europe should consider very carefully whether it really wants that precedent: I strongly recommend against it.

Europe should also consider the example of the Roman Empire. The Romans worshipped many gods, but one of the most powerful was “Terminus”, the god of boundaries. Terminus had a far more practical influence on Roman thought than a more abstract god like Jove, even though the latter was the titular “Father of the Gods”. The Romans believed that Terminus always moved in one direction, either outwards or inwards. So long as they had the god’s favor, the Empire would expand, absorbing nation after nation, and so it was for centuries. Once Augustus fixed the limits of the Empire, and then especially after Trajan’s campaign to conquer Dacia, the Romans felt a foreboding of doom. The Empire was no longer expanding; there was only one way for Terminus to move. And who could stand against a god?

terminus

In a sense, the European project has mirrored the Roman experience, though peacefully and over a far shorter period of time. The EU was successful; it expanded; nations clamored to get in. Now, it seems that the frontiers have been reached and a sense of foreboding sets in: what happens if Greece exits? Will this be a sign that Terminus has moved irrevocably in the direction of contraction? No one today would openly subscribe to such a primitive, pagan notion; but markets are primitive in many ways and there is no denying that many Europeans have been feeling the icy fingers of Terminus on their collective futures. It might be folly to make too much of this imagery, but it would be folly to ignore it completely.

In any event, Greece should be kept in the EU and Eurozone, even if that means forgoing the pleasure of humiliating her.

Sources and Notes: 

 [1] Anna Zarifi, “Schaeuble: We won’t accept one-sided changes,”  Times of Change, 02 February 2015

[2] Nina Schick, “Schäuble refuses to give Greece an inch,” Open Democracy, 06 February 2015

[3] “Tentative deal for extension agreed at Eurogroup,” ekathimerini.com, 20 February 2015

[4] Peter Spence, “Greece may need ‘Cyprus style’ capital controls, says Jeroen Dijsselbloem,” The Telegraph, 17 March 2015

[5] Peter Spiegel and Kerin Hope, “Eurozone anger with Athens intensifies,” Financial Times, 05 April 2015

[6] Ambrose Evans-Pritchard, “Greek defiance mounts as Alexis Tsipras turns to Russia and China,” The Telegraph, 01 April 2015

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