Saturday,18 August, 2018
Current issue | Issue 1249, (4 - 10 June 2015)
Saturday,18 August, 2018
Issue 1249, (4 - 10 June 2015)

Ahram Weekly

A Greek thread in the EU

A new chapter in the Greek economic crisis is unfolding that could bring down the Eurozone if talks between Greece and the EU fail, writes Stefan Weichert

Al-Ahram Weekly

The European Union is holding its breath these days. A lot is on the line as representatives from the EU negotiate with Greece about the latter country’s debt problem, one that has been ongoing for years.

The result if an agreement is not reached, some experts fear, will be not only the collapse of the Greek economy and the humanitarian consequences that follow, but also the potential impact this could have on a weakened European Union.

The EU is still trying to recover from the 2008 financial crisis that caused countries like Portugal, Spain, Italy, Ireland and Greece major economic problems. It has also seen the rise of Eurosceptic left and right-wing parties within the European parliament and national parliaments, threatening the current path of integration.

The EU is also trying to show unity on the pro-Russian separatist advance in eastern Ukraine.

Against this background, a Greek collapse could trigger a breakdown of the euro, which could lead to the end of the EU itself, some experts fear.

“I believe [Greece] will eventually leave. The problem is that there is no way that I can conceive of the euro continuing, unless and until all of the members of Eurozone become politically integrated – actually even just fiscally integrated won’t do it,” said former chairman of the US Federal Reserve Alan Greenspan in an interview with the BBC in February.

Since then, the situation has seen little improvement despite intensive meetings between representatives of the Greek government and its creditors such as the International Monetary Fund (IMF), the European Financial Stability Fund, the European Central Bank and others.

The target has been to find a solution for the country’s debt problem of 323 billion euros and upcoming repayments, but little has been accomplished despite new deadlines for repayments. 

Recently, Greece had to repay a loan to the IMF of 750 million euros, which the country managed to find by emptying an IMF holding account of 600 million euros and adding another 150 million from cash reserves.

A Greek Central Bank spokesman confirmed this information to CNBC recently, the fact that Greece paid the IMF with money from the IMF raising eyebrows among economic experts.

Further payments are coming up next month, and Greece will need to repay another 1.566 billion euros to the IMF and roll over 5.2 billion euros of treasury bills by the middle of June.

In an email to Al-Ahram Weekly, Giovanni Zanni, an economist at Credit Suisse, estimated that Greece could survive until 20 July at the latest without further cash from the EU, but that a deal between Greece and its creditors would be more likely at the end of June or earlier.

The Master Financial Assistance Facility Agreement signed in February, which keeps Greece floating economically, expires by the end of June, he said.

The agreement is an extension of funds from the European Financial Stability Facility to Greece and was made to stabilise the country for a period after the EU and IMF froze an agreed bailout of 7.2 billion euros.

This bailout was put on ice because of the new Greek government’s lack of commitment to implementing economic reforms on issues such as pensions and labour market overhauls. 

In the elections in Greece earlier this year, the left-wing Syriza Party got 36.6 per cent of the vote and took office with coalition parties. 

The new prime minister, Alexis Tsipras, succeeded the reform-friendly Antonis Samaras who had had to call early elections. Greece has had multiple governments since 2008 because of increasing frustration and lack of cooperation in parliament.

Tsipras’s appointment is one of the main reasons for the current crisis because it has worsened the relationship between Germany and Greece, explains Dimitris Keridis, an associate professor of international politics at Panteion University in Athens.

“The current government was elected on a populist agenda. They were unrealistic from the beginning. This runs all the way down to their economic agenda,” Keridis told the Weekly.

“The government have dragged the negotiations out for three months in the hope of a better deal, but in fact the chance of a better deal is worsening as the economic situation in Greece is weakening and the financial situation is going down.”

He said that Greece will need to strike a deal at some point in order to prevent bankruptcy. A deal including austerity measures will need to be presented to the Greek people even if this will be unpopular.

“The hope is that at the last minute when every drop of money has been exhausted and all possibilities have been tried the government will find a compromise. The parliament cannot really reform because of the parties in it. We are talking about the very radical Syriza Party, which used to get three per cent of the vote and now suddenly gets 36 per cent and runs the government,” Keridis said.

Meanwhile, the situation in Greece, which joined the EU in 1981, has changed from a financial crisis to a humanitarian one. This could worsen with cuts to schools, hospitals and pensions, if Greece faces bankruptcy.

“The situation remains very bad,” said Nancy Retinioti from the healthcare organisation Médécins du Monde, “We see many people who cannot afford their medicine anymore – people who are in the middle of treatment for a disease and can longer afford the medicine to treat it, such as people with chronic illnesses like diabetes.”

“People are very pessimistic. Most are depressed at the situation, and many have the feeling that nothing will change,” she said.

The present budget deficit in Greece remains at about 4.6 per cent, lower than the 15.6 per cent in 2009. The unemployment rate is around 25 per cent. 

In a desperate attempt to solve the crisis, the government has tried to demand war reparations from Germany for World War II and threatened to land a deal with Russia or other non-EU countries if the EU fails to provide loans. 

“This government is trying to use Germany. Many people consider the Second World War to have been humiliating because foreigners ran the country for five years. The government is trying to use this to its advantage, but it will not work,” said Keridis, who doubted that the government would call a threatened referendum on the issue.

“There is no money for that,” he points out, predicting that Greece will strike a deal in the end, even if this comes at the very last minute.

Adel A Beshai, a professor of economics at the American University in Cairo, is optimistic. “I am convinced there will be a deal and Greece will stay in the European Union. They are going to make a deal in which Greece gets something and its creditors get something,” he said.

 Large countries like Germany and France get too much out of the Union to let Greece leave and create instability, he said, though it could benefit Greece if it left the EU.

 “The country would flourish if it left. It would get its own currency back and the possibility to devalue it. The fact that Greece cannot devalue the currency is the real problem,” Beshai said.

In his view, little would change for Egypt if Greece left the EU. However, Greek exports would be cheaper, and there could be further cooperation between the two countries, he said.

In an article by UN economist Mahmoud Al-Khafif in the Weekly on 30 April, it was argued that though the Arab countries have their own currencies they are still influenced by the neo-liberal policies recommended by the IMF, World Bank and US Treasury.

They should “adopt a development vision for the future of their societies, stand firm when negotiating with their creditors, and exert all possible efforts to break their dependency on the West,” Al-Khafif said.

Such policies might be more possible than usual for the Arab countries at the moment, according to Keridis. “Europe is focusing so much on its internal problems right now that it does not have so much time for the rest of the world,” he said. 

“Even so, Europe is still a very big promoter of democracy and liberal policies. The young people who started the 2011 Revolution in Egypt can look over to the other side of the Mediterranean Sea to countries where human rights are respected and where people have freedom and work,” he added.

 “The EU is still a very powerful benchmark for the Arab world. Not many authoritarian rulers like Europe because the continent is there to remind them of how awful they are. Do not underestimate the power of Europe or the EU, which has overcome most of the populist movements within the continent.”

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