As EU sleepwalks towards Grexit, tragedy turns to farce
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A frantic flurry of 11th-hour attempts to stave off Greece's bankruptcy and exit from the eurozone underscores Europe's colossal failure in dealing with the country's debt crisis. How did it come to this?
Greece became the first EU country to default on its creditors late on Tuesday as it failed to make a €1.5 billion payment to the International Monetary Fund (IMF). At the same time, the world's biggest and most divisive bailout of a sovereign state came to a bitter end five years after its launch, leaving Greece alone, insolvent and on course for a possible exit from the eurozone. Greek voters now head for a critical referendum on Sunday, facing a horror choice between more brutal austerity and a leap into the unknown.
In a defiant televised address on Wednesday, Greek Prime Minister Alexis Tsipras showed no sign of backing down from the referendum, urging Greek voters to say "No" to proposals put forward by Greece's trio of creditors (IMF, eurozone and European Central Bank) in return for a bailout extension. “'No' does not mean rupture with Europe, but a return to a Europe with values,” Tsipras said, adding that a popular mandate would strengthen his hand at the negotiating table.
The Greek leader's address ended speculation that his government was having second thoughts about the referendum. Earlier in the day, Tsipras had appeared to waver as he sent a letter to his creditors saying he would accept the creditors' conditions with some minor changes. This came a day after Greece tabled surprise new proposals in a desperate bid to avoid defaulting on its debt.
Both moves were swiftly knocked down by German Chancellor Angela Merkel. Addressing German lawmakers at the Bundestag, Merkel repeated her stance that there is no point in resuming talks until after Sunday's vote. Others, including French President François Hollande and US Treasury Secretary Jack Lew, urged all parties to strike a deal at once. And as Pope Francis called on the faithful to pray for Greece, doubts emerged about the feasibility of Sunday's vote. The Council of Europe, an independent human rights watchdog, warned that a hastily arranged referendum would fall short of international standards. It was just the latest twist in a rollercoaster two weeks that has taken the European Union to unprecedented levels of brinkmanship.
The history of the EU has always been one of messy compromise and “kicking the can down the road”. This time Greece's left-wing Syriza government has refused to kick the can any further and no compromise, however messy, could be reached. Five months of deadlocked talks have given way to a slanging match, with all parties now scrambling to deflect the blame for a catastrophic failure that has eroded the eurozone’s credibility and shattered the myth of the single currency’s irreversibility.
EU leaders don't want to go down in history as those who presided over the break-up of the euro. At the very least, they are desperate to clear their names if the break-up cannot be stopped. Since the collapse of talks over the weekend, representatives of Greece’s creditors have rushed to lay the blame squarely on Tsipras’s shoulders. In an unusually strongly worded speech on Monday, EU Commission chief Jean-Claude Juncker said he felt “betrayed” by the Greek leader. “I have done everything I could” to secure a deal, said an emotional Juncker, proclaiming that Greeks were “close to [his] heart” but that the creditors’ goodwill had been “thrown to the wind” by the actions of Tsipras’s government.
In a sign of how relations have soured, Juncker accused the Greek prime minister of telling lies about the creditors’ proposals. But his suggestion that they did not include further cuts for Greek pensioners – 45% of whom already live below the poverty threshold – raised more than a few eyebrows in the press room. It drew a swift rebuke from a government spokesman in Athens, who accused Juncker of telling a “preposterous lie”.
The best part was yet to come. The Commission chief went on to suggest that the creditors were “about to discuss debt relief” when Greece abruptly ended the talks. If that is true, then Tsipras must have been either incredibly unfortunate or incredibly foolish to break off talks just as his central demand (and that of every Greek government for the past five years) was finally being addressed. One side is surely lying – or are they both?
Two tales of a crisis
The seemingly endless dispute between Greece and its creditors has been one of sharply conflicting narratives. Creditors speak of reforms, where Greeks see only savage austerity. When the former Troika calls for “compromise”, Greeks understand “humiliation” (the sweeping red-inked corrections to Greece’s proposals are a case in point). Creditors say Greece has been slow to slash spending, whereas Athens points out it has cut further than any other country in recent history. Juncker describes the bailout programme as “growth-oriented”, while the Syriza government says it is recessionary and tantamount to “fiscal waterboarding”. After five years of “shock therapy”, it is easy to see why: Greece’s economy has shrunk by a quarter, its industrial output by a third, and millions have been pushed into poverty.
Accounts of how talks collapsed over the weekend also differ. The creditors say Greece walked out of negotiations after Tsipras called a referendum. But the view in Athens is that its finance minister was pushed out of a Eurogroup meeting and was told, when he questioned the legality of the move, that the group “can do what it likes because it is an informal body”.
The referendum call is itself a subject of controversy. One view is that Tsipras shirked his responsibility by passing a toxic decision on to the Greek people. Another sees the Greek leader as a model democrat: he was elected to secure concessions but was offered little or nothing, thus rather than betray his election promises he will let Greek voters choose.
Greece’s creditors were thrown off balance by Tsipras’s move. The last time a Greek premier called for a referendum, in 2011, he was duly removed and replaced by a more pliant technocrat. This time, Greece’s creditors have sought to regain the initiative by turning the referendum into a vote on the euro: vote no to the proposals, and you’re out of the eurozone. "It is time for Greeks to speak up and to shape their own destiny," said Juncker on Monday, presumably unaware that increasingly desperate Greeks have been speaking out loud and clear for the past five years.
Bailing out... the banks
This fundamental incomprehension translates into sharply opposed public opinions. The German mood in particular has soured over Greece’s perceived ingratitude. Europe's richest country has put up with the lion's share of Greek debt, accounting for €77 billion of the more than €310 billion forked out by Greece's lenders since the start of the crisis. No wonder the Germans are aggrieved when Athens accuses them of being ungenerous. But that is only one way of seeing the matter. What Germany doesn't – or would rather not – see is that cash-strapped Greeks never got the money, or only a fraction of it. More than 90% of the bailout money has gone to bailing out the German and other foreign banks that held Greek debt in the first place and then paying interest on Greece's debt, which is now much larger than it was at the start of the crisis.
This is how Greeks view the equation, and so did the non-European IMF delegates who warned against imposing such a programme back in 2010. Leaked minutes of high-level IMF meetings held at the time have shown that critics of the bailout deal imposed on Greece warned against doling out such harsh treatment on an ailing patient.
“It is very likely that Greece might end up worse off after implementing this program,” said Argentina’s Pablo Andrés Pereira, mindful of the disastrous impact of past “rescue packages” imposed on his country. His Brazilian counterpart, Paulo Nogueira Batista, warned that the bailout deal “may be seen not as a rescue of Greece, which will have to undergo a wrenching adjustment, but as a bailout of Greece’s private debt holders, mainly European financial institutions”. Both said debt restructuring should have been on the table, a view echoed by the Swiss, Egyptian, Iranian and Russian representatives.
IMF economists have been arguing for years that Greece's programme is unsustainable and in breach of the organisation's own rules on debt sustainability. It is a remarkable feature of the Greek debt crisis that Greece’s government has enjoyed such little (if any) support among fellow EU members when most economists, including such heavyweights as Nobel laureates Paul Krugman and Joseph Stiglitz, have consistently endorsed its analysis of Greece’s woes (namely, that the country’s debt is unsustainable and that austerity is making things worse) and blasted the “insanity” of its creditors. Both have urged Greek voters to reject further austerity by voting “No” in Sunday's referendum.
“The political implications of a yes vote would be deeply troubling,” Krugman wrote on Monday. “The troika clearly did a reverse Corleone they made Tsipras an offer he can’t accept, and presumably did this knowingly. So the ultimatum was, in effect, a move to replace the Greek government. And even if you don’t like Syriza, that has to be disturbing for anyone who believes in European ideals.”
It's politics, stupid
There is a strong case to argue that Greece's debt crisis is really about politics and the irreconcilable clash between Europe's political establishment and the first party to have genuinely challenged it. French economist Henri Sterdyniak told FRANCE 24's sister radio RFI that the creditors' “aim is to sink Greece and show that there is no possible alternative to the orthodoxy”. Giving ground to Syriza would bolster anti-establishment parties across Europe and suggest that a genuine change of policy in the eurozone is a possibility, Sterdyniak argued. If this is the case, was a "compromise" deal ever possible without one side caving in completely?
Crisis summit after crisis summit, we have heard the phrase “inches away from a deal” countless times, only for the deal never to materialise. Juncker again made the claim on Monday, saying Tsipras had scuppered talks when a deal was within sight. The only person who has never sounded optimistic – and has consistently been proved right – is German Finance Minister Wolfgang Schaüble, presumably because he and other like-minded “hawks” in eastern and northern Europe had enough clout (and willingness) to shoot down any deal that featured concessions to Syriza.
Earlier this month, when Juncker and several eurozone leaders hailed Greece's new proposed reforms, which European Council chief Donald Tusk patronisingly described as the first “serious proposals in weeks,” Schäuble promptly took the fizz out of the celebrations by saying he saw “nothing new” on the table. The German finance minister then rebuked EU Commission officials for welcoming the Greek proposals as “a good basis for progress”. His even tougher Finnish counterpart, Alexander Stubb, followed suit by dismissing the ensuing crisis summit as “a waste of air miles”.
Ironically, Schäuble – of all people – has openly contradicted EU leaders' main argument against a “No” vote on Sunday. On Tuesday, he was quoted as saying that a victory for the “No” camp would not automatically entail Greece's exit from the single currency. Greek voters tempted to reject the creditors' programme but fearful of being kicked out of the eurozone may take heart from this. Should Schäuble thus strengthen the “No” campaign, it would not be the first – nor probably the last – irony in this never-ending saga. The rollercoaster goes on.