The new Greek debt deal is an adroit medium-term political fix for a problem that could have spelt catastrophe for the European single currency. Greece was not bailed out by fellow eurozone members because it was one of the largest zone economies. It was rescued because it was too small to fail. Had the rest of the eurozone proved incapable of handling a relatively limited crisis, its ability to sustain itself against much stronger headwinds would have been in serious doubt.
The crisis of course has been by no means small for the Greeks themselves. Since 2012, their economy tanked from a GDP of $289 billion to $194 billion in 2016, thereafter recovering, albeit slowly. For the man in the street this has meant painful austerity as incomes plummeted. Jobs have been lost. Around 20 percent of the workforce is currently unemployed. Next January pension reforms insisted on by Greece’s eurozone partners will see a marked reduction in the entitlements for the retired coupled with an increase in workplace contributions.
The once eminently bribable Greek taxman has supposedly become history, but corruption at all levels of the bureaucracy remains a challenge for the radical government of Alexis Tsipras who faces a general election by next year. He will clearly campaign that he has persuaded his EU partners to push back by ten years the period during which interest will not have to be paid. He did not, however, induce them to write off any portion of the $200 billion debt which they had bought up from the financial markets to stop the country defaulting on its borrowings.
In return for continued financial support, there will still be tough controls on how the Greek government can spend its money. The recovery that is under way is unlikely to filter down rapidly to ordinary citizens. But while a feel-good factor may be lacking, Greeks can hope the worst is over and from hereon in, their lives can only get better.
EU economic affairs commissioner, Pierre Moscovici announced after the new deal had been inked, “The Greek crisis ends here”. Some analysts would have been more convinced had he added: “For now”. But then, of course, the politics of the eurozone preclude admitting doubt, unless it can be wrapped up in impenetrable verbiage.
Moreover, as one crisis appears to end, another looks to be beginning. The radical Italian government of Giuseppe Conte is already enacting its pitiless campaign promises over migrants and is set to challenge the tough rules it claims are hobbling the third largest eurozone economy. While French president Emmanuel Macron and German chancellor Angela Merkel have been planning the next logical move in the development of the single currency, the creation of a single EU budget, the new Italian coalition has been deploring the existing regulations. The populist Five Star Movement (M5S) and far-right Lega party are both Eurosceptic and it is inconceivable that they would countenance even the coordination of EU member budgets. They might have hoped that Brexit would have made Brussels more sensitive to the anxieties of other EU member states. But instead, while driving hard exit bargains with the weak minority government in London, enthusiasts for ultimate European unity are continuing to push the project forward. Is, therefore, “Itexit” now possibly on the cards?
