Grexit: Economic choice or political nightmare?
The ongoing Greek saga is not simply about debt – it’s about the raison d’etre of the EU itself, says Joseph Mariathasan
I can remember asking a Greek American millionaire at the height of the euro-zone crisis what he thought about lending more to Greece. He thought briefly and then said that, for the European Union (EU), it was like it would be for him if his son were to ask him for a $100,000 loan. As he explained, he would have been willing to lend the money if his son were spending it on an MBA or starting a business. However, if his son had said he wanted it so he could spend the next three years boozing with his buddies, he would have been somewhat more reluctant!
That attitude has pervaded the discussions in Europe on what to do about Greece. There appears to be a generally held view that Greece falsified its statistics to join the euro, and that its politicians then used the access to cheap debt not to rebuild its infrastructure or invest in new industries but to bribe voters by spending lavishly on a bloated public sector and an unsustainable welfare system. But that dismissal of addressing Greece’s ongoing debt burden misses a far more fundamental issue that strikes at the heart of the raison d’etre of the EU itself.
The EU is a direct development of the European Coal and Steel Community (ECSC) established in 1951, just a few years after World War II, whose prime purpose was to prevent another European war. That rationale appears to have been forgotten in the debate over Greece. With hindsight, few would disagree with the notion that both Greece and the EU would have been better off now had Greece not joined the euro. But the past is the past, and the issue now is what to do next.
The heated discussions over whether Greece should be allowed to write off its debt and what precedent that would set for the rest of peripheral Europe ignore a far bigger danger than just economic disruption. The alternative for Greece of EU support is quite simple. It has a thousand years of cultural linkage with Russia (and the Ukraine). At a time when the EU is struggling to contain Russian president Vladimir Putin and faces the very real possibility of getting sucked into a proxy war with Russia over the Ukraine, the EU needs to beware of bearing Greeks as gifts! A Greek exit from the euro would inevitably lead to an exit of the EU itself by a desperate Greece, led by a far left leadership that has strong sympathies with Russia at a time when Russian nationalism itself has become buttressed by its commonality with Greece through Orthodox Christianity. Moscow was known as the ‘third Rome’ – the bastion of Orthodox Christianity – after the fall of Greek-speaking Constantinople in 1453. Greece moving into Russia’s sphere of influence supplied with appropriate economic support would be a rational response by both Greece and Russia in the wake of a chaotic Grexit.
The focus by Northern Europe, led by Germany, on the necessity of Greece’s sticking to austerity and debt repayment, come what may, is both misguided and hypocritical. To ‘extend and pretend’ that debt write-offs are not required and will not be tolerated is particularly bizarre given that West Germany had 50% of its debt written off in 1953. This was at the height of the Cold War, on the insistence of the US as it tried to develop a prosperous and stable Western Europe, strong enough to be able to stand up to the Soviet Union. As Europe faces a new existential crisis over Greece, that need to create a prosperous and stable EU strong enough to stand up to a post-Soviet Union Russia has become greater than ever. That idea should be the primary factor guiding EU decision-making over Greece and trumps concerns over the precedent it could set for Portugal, Italy and so on. Moreover, the years of austerity have led to real change in Greece. The corollary to the story of the Greek American millionaire is that, whilst he was unwilling to invest in Greece for many years, in 2014, he was more positive than he had ever been and was active in both private equity and real estate.
Joseph Mariathasan is a contributing editor at IPE