The common-sense observation by both U.S. and International Monetary Fund officials that Greece’s debt needs to be partially written off if a successful solution is to be found in the current crisis has created predictable angst. Social media are full of two kinds of anger: Either that Greece is the author of its own misfortune and should not be rewarded for bad behaviour, or that the creditors are the “new terrorists” and are snubbing Greek democracy as expressed through last weekend’s referendum.
The situation is complicated, to put it mildly. But the elements are clear enough. Greece’s official public accounts did not reveal its true financial position at the time of its adhesion to the euro. The financial crisis of 2008 revealed the seriousness of the problem, and despite two previous attempts at “reform,” Greece’s whole economy and well-being are in deep crisis. Unemployment is at 25 per cent, youth joblessness is twice that, public debt is at 175 per cent of GDP and interest on that debt is at more than 10 per cent. Cuts to pensions and public spending and increases in taxes have not done the trick. Meanwhile, the sudden emergence of a populist movement that rejects austerity, elected Prime Minister Alexis Tsipras’s government and armed him with a No vote in last Sunday’s referendum have led Europe and Greece to the brink.
There’s enough blame to go around. Yes, Greece’s public accounts were a shambles. But the European Union turned a blind eye to it because they wanted a clean launch to the euro. The time for a blunt reckoning and candour was at the moment of the currency’s creation. Greek public benefits were absurdly high and everyone else knew it. The money poured in during the good times, and the contradictions of the union were never addressed. A currency has to be based on more than a political desire for unity. It requires not only commitments to fiscal rectitude, as per the Maastricht Treaty, but common approaches and common programs. No common currency came with the North American free-trade agreement, for good reason. The institutional framework to back up the common currency doesn’t exist.
All this was laid bare in the crisis of 2008 and 2009. Greece was not, and is not, alone: Many other European countries (and would-be members of the euro zone) face huge issues of high unemployment, stagnant growth, massive public and private debts and public resistance to changes in public programs, pensions, benefits and entitlements. The Greek crisis is the one at hand, but it’s not a one-off.
Mr. Tsipras’s government continues to play the populist game, and if it persists in a simple “good guys, bad guys” gambit, the country will be out the door. There is an argument that Greece should be allowed to leave the euro and re-establish the drachma as the national currency, relating and devaluing as part of a program of national recovery. But even a Grexit has to be negotiated. Populism has its limits, and Mr. Tsipras’s government has reached them.
Membership in Europe has its privileges, but it also has its responsibilities. Greek public opinion continues to show a healthy majority wanting to be part of the European family. That logically implies a willingness to accept constraints, limits and reforms, which are never pleasant or easy, or always politically popular.
Some commentators note that Greece’s economy is tiny and conclude that this is a political psychodrama without much economic consequence. The recent public comments by both the Americans and the IMF underline that in a globalized economy, there are no purely local issues. In a week when the Chinese stock market is sinking quickly, it would be unwise to dismiss the Greek crisis. We don’t yet have the governance to match the problem, but solutions must be found.
Every successful restructuring involves a sharing of pain and a realistic plan for gain. Public scolding and finger pointing don’t help, and Greece’s partners are democracies, too. Public opinion will have a restraining effect on every party at the table, not just one of them. Every other country in Europe will be watching for the precedential effects of any decision.
That this is a dramatic, high-stakes negotiation goes without saying. But the drama becomes a tragedy only if there is a continuing failure of leadership.