Eurozone leaders may well have succeeded in fostering a new generation of eurosceptics by forcing Greece to accept a humiliating third bailout deal that even the IMF says is doomed to fail – just as the first two did.
It is safe to say that historians will one day look back at the Greek drama and marvel at how a manageable deficit crisis in a small country accounting for 2% of Europe's GDP could spiral so out of control that it rattled the world's most stable regional bloc and sent financial shockwaves rippling across the globe.
They may remember the marathon talks that ended Monday morning as the moment the eurozone's dominant member openly threatened to get rid of a troublesome junior partner, and hundreds of thousands of Europeans took to social media to scream #ThisIsACoup.
Following the belated release of a secret IMF report on Tuesday, they should also recall that a full 24 hours before a deal was reached, the eurozone's top brass pushed under the rug a damaging document stating that Greece needs precisely what creditors refused to grant: substantial debt relief.
The report, which EU leaders now admit they received before the deal was signed, says European countries will have to give Greece a 30-year grace period on servicing all its debt or accept "deep upfront haircuts" on their loans to Athens.
Greek tragedy gets scholarly – and silly
France and the US were already calling for debt relief, as were the vast majority of economists. Indeed the IMF’s own experts have been saying as much for years. But Germany and its allies refused, saying debt relief would breach eurozone rules.
All Athens secured was a vague pledge to discuss a “possible” extension of maturities in the coming months – something it was promised in 2012 and never got. In return, Greece’s battered government had to accept another dose of sweeping budget cuts, coupled with a virtual takeover of its economy.
In the summit’s final stretch, Greek Prime Minister Alexis Tsipras was subjected to a 17-hour browbeating by leaders furious that he had spurned their previous bailout offer in June and held a referendum to reject it. One observer described the session as “mental waterboarding”. By the time Greece’s five-month battle with its creditors had drawn to a bitter close, the leader of the left-wing Syriza party had crossed virtually all his red lines.
Tsipras was forced to accept more of the punishing austerity programme that he blames for turning Greece’s recession into a six-year depression that wiped out 25% of the country’s economy, pushed millions into poverty, and dramatically increased the debt-load it was supposed to reduce.
He was given just 48 hours to pass a slew of controversial reforms into law, including automatic spending cuts should his government breach the creditors' budget targets. Greece's prime minister also had to accept the return of Troika officials to Athens, with the power to veto national legislation, and the sequestration of Greek state assets supposedly worth 50 billion euros in a trust fund, to be sold off primarily to pay down debt.
The seizure of Greek assets has been likened to the colonial-era plunder of nations' wealth. It could have been worse. Eurozone ministers called for the assets to be placed in Luxembourg, home of the “LuxLeaks” tax fraud scandal. They suggested the sell-off be administered by a local structure whose parent institution, KfW, is chaired by the German finance minister, Wolfgang Schäuble.
Tsipras resisted those demands and the fund will be placed in Athens, but under the supervision of its creditors. He failed to prevent continued oversight by the IMF, which is reviled by most Greeks. The Financial Times has dubbed the bailout deal “the most intrusive economic supervision programme ever mounted in the EU”. For Deutsche Bank, it “barely stops short of demanding that Greece becomes a vassal state of Brussels”.
On Wednesday evening, the Greek parliament was host to the surreal scene of a prime minister calling on MPs to back a plan he did "not believe in" but was forced to sign "to avoid disaster". Looking mortified and downbeat, his finance minister, Euclid Tsakalotos, said the decision to approve the bailout terms would "burden [him his] whole life". He added: "I don't know if we did the right thing. I do know we did something we felt we had no choice over."
The package was duly approved, though only thanks to the support of centrist and conservative opposition parties, who blasted the government for getting a bad deal as a result of unnecessary brinkmanship.
What the IMF has to say about Greece's debt
There is little doubt Tsipras underestimated the extent to which creditors were itching to punish his administration for its defiance. Greece offered to surrender, but hardliners sought capitulation. “Europe wanted to make an example of Greece to make sure other countries wouldn’t follow it,” said FRANCE 24’s Athens correspondent, Nathalie Savaricas.
Going in to the summit, Greek negotiators were helped by French technocrats to ensure their proposals were creditor-compatible. They believed their case was water-tight, and indeed EU officials were full of praise after receiving the measures. But in less than 24 hours the Greek offer was ripped apart by eurozone finance ministers and replaced with stringent demands that included the reversal of every measure against austerity the Greek government has taken since its election in January.
Economists and commentators were staggered by the scale of the demands. “Just got around to reading Eurogroup draft. Reminds me of when the Romans sowed Carthage with salt,” tweeted political analyst Vincenzo Scarpetta (@LondonerVince). “I always figured the Creditors wd slap Greece around before offering a deal. Didn't see them beating them over the head w/ a baseball bat,” said market analyst Owen Callan (@OwenCallan). “Looking at recent developments it basically looks like Germany refuses to accept Greece's surrender,” said Paul Harris (@paulxharris), a senior executive producer at Al Jazeera.
In a piece titled “Killing the European Project”, Nobel laureate Paul Krugman described the creditors' wish list as “madness”. “The trending hashtag ThisIsACoup is exactly right,” he wrote on his New York Times blog. “This goes beyond harsh into pure vindictiveness, complete destruction of national sovereignty, and no hope of relief.”
Gunning for Grexit
Krugman was one of several observers to argue that the creditors’ toughest demands were intended to provoke a Greek exit from the eurozone – the single currency bloc that was supposed to be irreversible. Professor Karl Whelan of University College Dublin said “German strategy appears to be to set conditions that won't be met and force Grexit”.
How do you say 'austerity' in German?
The German finance minister and several of his colleagues have long believed that the eurozone would be better off without Greece. Timothy Geithner, the former US Treasury Secretary, wrote in a book published last year that Schäuble told him in 2012 of his desire to see Athens out. The German hardliner said Grexit would appease German voters and scare the rest of Europe, according to Geithner, who confessed he was “frightened” by the idea.
Ultimately, it was the threat of Grexit – combined with the ECB’s stranglehold on Greek banks – that secured Tsipras’s capitulation. It was serious enough for a handful of eurozone leaders to take the rare step of openly challenging Germany.
“The Grexit must be prevented,” Luxembourg’s Prime Minister Jean Asselborn told the Süddeutsche Zeitung newspaper, warning of a “disaster for the reputation of Germany within the EU”. His Italian counterpart was equally scathing: "Italy does not want Greece to exit the euro and to Germany I say: enough is enough," Matteo Renzi was quoted as saying by Italian daily Il Messaggero. “Humiliating a European partner after Greece has given up on just about everything is unthinkable," he added. Ultimately, it took intense diplomatic pressure from Paris and Washington to persuade hardliners to drop Grexit – for now.
In the wake of Monday’s agreement, France's ruling Socialists have been busy congratulating President François Hollande for his decisive role in preventing Grexit, seeing this as evidence of their enduring stature in EU politics. In reality, they were shocked by the extent of German intransigence – not least since they had helped draft the Greek proposals.
French Socialists were particularly stunned to see their traditional allies from the German SPD, Merkel’s junior coalition ally, sound just as hawkish as the German right wing. The SPD’s Martin Schulz, the EU Parliament chief, went so far as to call for regime change in Greece, saying the country’s democratically-elected government should be replaced by a government of technocrats.
The French government now faces an uphill battle persuading Germany to discuss meaningful debt relief. The country’s economy minister, Emmanuel Macron, sounded markedly pessimistic in remarks to the French press on Wednesday. “Realistically, it is impossible to have an agreement on the subject [of debt] in the short term,” he said.
From Grexit to Brexit?
Opinions polls show many in Germany and the Baltic states are already furious at the prospect of extending further bailout loans to Athens. The IMF report on Greece’s unsustainable debt suggests they are right to believe their money is going down the drain. It also proves they are wrong to think this is merely the fault of feckless Greek governments. All too often, mainstream German media have ignored the fact that bailout money primarily rescued German and other banks, not Greece. They have also failed to point out that, under the creditors' guidance, successive Greek government have made swifter and deeper spending cuts than any other country in recent history, with disastrous consequences.
Elsewhere, the humbling of Greece has succeeded in the remarkable feat of turning europhiles into eurosceptics. From Rome to London, moderates have expressed their disgust in newspapers and social media, having come to the conclusion that the Europe they so cherished had turned into a monster.
“Who wants to hand over greater sovereignty to Schäuble’s Europe if it means one day having the Coliseum or the Champs-Elysées pawned?” asked Italian daily La Repubblica, arguing that the “project of greater European integration has been impounded”.
Debt relief and Germany's economic miracle
In the UK, where a referendum on EU membership is looming, several of the most Europhile commentators are now openly calling for “Brexit”, Britain’s exit from the union, a stance long associated only with Conservatives.
"Progressives should be appalled by the European Union’s ruination of Greece. It’s time to reclaim the Eurosceptic cause," says the Guardian’s Owen Jones. Writing in the Spectator, Nick Cohen claims the EU is being portrayed “with some truth, as a cruel, fanatical and stupid institution”. “All my life I’ve been pro-Europe,” says Caitlin Moran of The Times, “but seeing how Germany is treating Greece, I am finding it increasingly distasteful".
Speaking to reporters after Monday's crunch deal, German Foreign Minister Frank-Walter Steinmeier, one of the few moderate German voices in the Greek crisis, said the agreement reflected Europe's readiness to reach political compromises, "a characteristic that formed a peaceful and prosperous union from a fragmented continent after World War II". He did not add that "the peaceful and prosperous union" was largely made possible by a generous write-off of Germany's post-war debt – the kind of gesture Berlin and other hardliners are now denying Greece.
“With the Greek crisis, the European project has lost some of its vision, its idealism, its hope,” says the BBC’s chief correspondent, Gavin Hewitt. While the blame must certainly be shared by all parties, there is no escaping the fact that Europe has presided over the economic collapse of one of its members. As a result, Greece is facing decades of misery, Grexit is still a distinct possibility, and Brexit has just found a whole lot of new fans.
Date created : 2015-07-16