Published daily by the Lowy Institute

Avoiding a Greek tragedy

Avoiding a Greek tragedy
Published 3 Feb 2015 

Greece, under its new prime minister Alexis Tsipras, will have to find an arrangement with Brussels regarding its public debt. The proposed 'haircut' for Greece's public debt, amounting to around 175% of Greece's GDP, is unlikely as it would amount to additional payments for a country which has already received plenty of latitude from the other EU members. (Finance Minister Yanis Varoufakis has now proposed an alternative plan.)

The real EU problem with the very heterogeneous new Greek government, composed of a big slice of the extreme left and a small slice of right-wing authoritarian nationalism, lies elsewhere.

Greek Prime Minister Alexis Tsipras .(Wikipedia.)

For one thing, there is the danger of precedent, with wildly populist parties winning national elections and then pretending to play David to the supposed European Goliath. The only loud applause after the Syriza party won the Greek elections came from parties in other European countries on a similar populist path (whether far left or far right). The French are not saying les extrêmes se touchent ('extremes meet') for nothing.

More ominous would be if major parties in big EU countries tacked towards more strident (or in the case of Cameron's Tories, even more strident) EU criticism and denunciations of German rigidity just to gain votes, only to then be imprisoned by their own rhetoric when they return to the negotiating table in Brussels.

My guess is that Greece is pretty much sui generis. The slump is deeper and unemployment higher than anywhere else. Add to that the incredible brazenness of the Greek 'One Percent'. They pay either no taxes at home or low taxes in Switzerland, London and other safe havens. The former head of Deutsche Bank, the Swiss banker Joe Ackermann, no leftie, said recently in Zurich that 'rich Greeks abroad speak of the Acropolis with tears in their eyes but refuse to engage the country around it' (author's translation from German). [fold]

Of more immediate concern for the EU is the pronounced pro-Putin attitude shown by Syriza. Their six deputies in the European parliament voted against ratification of the EU-Ukraine Association Treaty and against the condemnation of Russia after Putin's annexation of the Crimea. The first foreign ambassador received by Prime Minister Tsipras after his win was Moscow's man in Athens. You have to wonder what the latter promised. Credits, with the ruble in international free fall?

The only other EU member with similar pro-Russian leanings (and ruble affinities) is Cyprus, not exactly a mighty ally. However, all political decisions within the EU's Common Foreign and Security Policy are basically taken by consensus. Greek behaviour when sanctions are next discussed in mid-February in the European Council in Brussels will be an indication of whether Tsipras is trying to soften debt conditionality by political bluff or whether he considers 'Grexit' a real alternative for his country.

It is not. If he provokes an exit from the euro area, a present day Greek tragedy will play out to disastrous end. Disastrous for Greece, that is, since the EU and its banks and institutions are now better positioned than in 2011.

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