Good news stories are something of a premium in Greece at
the moment. Last night’s victory over Russia in Warsaw at the European
Championships made it hard for any football supporter not to be delighted for
the tournament’s rank outsiders. The energy and celebrations at the end of the
game sent the thousands of Greeks fans in the stadium into ecstasy, whilst much
of the country greeted the news in the same way back home.
Even when the Euro finally became an economic reality, many
officials believed that Greece simply wasn’t ready to join. The underlying
currency and economic conditions would have made convergence for the whole of
the Euro zone difficult. When the Greek government collapsed and its successors
opened the books, the whole of the world was shocked. Previous administrations
had managed to ‘cook the books’ on an enormous scale, using accounting methods
that had placed huge chunks of the Greek national debt off the official
records. Overnight officials discovered that Greece was running annual deficits
of 12% with a national debt of 129% of GDP.
Yet, this is far removed from the shock and optimism after
the country’s victory in Euro 2004. Greece was a founding member of the Euro
zone economy, its people were becoming wealthier and EU money was investing in
capital projects that would help improve the way of life. That Greece is now a
distant and rose-tinted memory. As the financial crisis began to bite in Europe,
European delegates began to understand how desperate the situation in Greece
had become. Several countries including France and Germany had broken the rules
of the European Central Bank’s growth and stability pact. The pact stated that
a country’s budget deficit should not exceed 3% of its GDP and its national
debt should not exceed 60 per cent of GDP. Little did they know how Greece managed
to stay in between the lines.
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| Captain Karagounis |
The downward spiral has continued from there since. As
successive Greek governments have implemented severe austerity measures in
return for EU bailouts, the social contract for ordinary citizens has begun to
dissipate. Cuts to the public sector, higher taxes as well the inability to
feed their families has seen Greeks take the streets on a daily basis. News
footage no longer depicts Athens as the birthplace of democracy, but a city
defiled with graffiti and polluted with tear gas. The language that invented
the words crisis, chaos and catastrophe has brought them to life.
The Greeks inability to trust any politician or economist
makes its long term future even more indecisive. Since the crisis unfolded,
over 10 per cent of the population has emigrated in search of work and most
likely a settled life. With them, they have taken their money. Over a third of
Greek bank deposits have left the country since the crisis began, €9 billion
has left since the beginning of the year.
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| Panic on the streets of Athens. |
It is unsurprising then that many have turned to alternative
parties in the recent elections. Not only has the far-right party Golden Dawn
managed to generate great support, but the radical left party Syriza has taken
votes away from the tradition socialist party Pasok. Syriza, led by its
charismatic and young leader Alexis Tsipras has vowed that Greece will remain
in the Euro but stop the austerity measures by reneging on its outstanding
debt. A victory for Syriza in the re-run of last month’s general election is
more than likely to be the first step of Greece leaving the Euro zone.
Yet how rational can the Greeks be at a time like this? Many
have been unemployed for over two years, whereas those in work have not been
paid for months. They are seeing all around them that a country in Western
Europe has become destitute and suffering affliction that you would only
associate with a war-torn nation. Suicide and food kitchens are part of the
daily routine. Any political party that gives them a glimmer of hope is bound
to cajole them to vote that way. Yet it is an entire fantasy. Greeks long to
remain in the Euro because it once gave them everything they wanted, yet
remaining in it would entirely undermine their recovery. The Syriza party may
be acting out of goodwill, with a hue of opportunism, yet even they wouldn’t be
able to remain in the EU without paying their debts. It would only lead to
other debt-ridden countries in the Euro zone to doing the same, pushing the
overall picture in the wrong direction.
The problem beyond both inside and outside of Greece is the
fact no one is certain of what will happen next. The recent bail out of Spanish
banks pushed Spanish and Italian bond yields to historical highs. The EU Troika
may have finally laid down contingency plans for future crises, but inevitably
they have acted too little and too late. If Greece falls then the economically
uncompetitive Italy and Spain are bound to fall next, bringing down the already
bailed out Irish and Portuguese. Capital flight may have created a safe haven
in the non-Euro member UK, but its banks are heavily indebted to Spanish and
Italian banks, who’s not to say that the UK could fall into another deep
financial crisis as well?
The questions surrounding Euro bonds seem futile, they may
avert short term crises, but they do not underwrite the fundamental problems
that these countries face. The German Chancellor Angela Merkel is increasingly
becoming isolated as world and EU leaders ask her to react, whilst her own country
feels that their prudence should not be sacrificed for feckless southerners. If
the Germans put forward the bulk of an EU firewall would it do anything or is it too late? Would a Greek return to the drachma see an instant return to growth
or would it lead to high inflation. These are all the questions that no one
seems to have the answer to.
The only thing that is certain is Greece will play Germany
in the quarter-finals. Who will win? I’m not sure. We thought Greece would
leave earlier, but they seem to have a knack of hanging on and causing a bit of
damage. The football may be important to most, but Monday’s results will have
implications for us all.
