Deal or no deal: Chaos in Greece

Yesterday, I wrote my post Why the European approach of forced austerity is wrong in response to Jarad Vary’s article at Minyanville (http://www.minyanville.com/) on the failure of the European austerity measures. In this article, I mentioned that the deal, in which the so-called Troika (IMF, ECB and the EU) obliged Greece to take additional austerity measures to the tune of €3.3bln, had been accepted by the Greek government.

This deal would enable handing out €130bn in new emergency loans for Greece. In my opinion this was a totally disgraceful deal, but the Greeks had to accept it ‘at gunpoint’ in order to avoid a certain default in March.

But then there was a new development in Brussels: the ink on yesterday's blogpost was hardly dry, when I learned that the European Finance Ministers of the EU had refused to hand out the first tranche of the emergency loans to Greece. In a united outburst of anger, resentment, frustration and openly displayed distrust, the Finance Ministers discarded the ‘deal’ that Minister Evangelos Venizelos took with him to Brussels.

Their reason: Greece had been an unreliable partner in the (recent) past and they only wanted to hand out the money when there was ironclad security that Greece would stick to the agreement. After the previous arrangements with Greece this had not happened and the EU finance ministers were not willing to take any risks now.

In other words, the three Greek parties involved in the current government needed to sign a contract that Greece would keep its part of the deal and would execute all austerity measures to the last character. And this contract had to be approved by a decisive majority in the Greek parliament. No open ends; no further negotiations! €3.3bln in austerity measures and not an Eurocent less!

And now the ball is again in the Greek penalty zone; this weekend or Monday at the latest, there will be a vote of approval in the Greek parliament on the deal that the troika forced on Greece.  But today, only days before this vote of approval will take place, there is a heavy battle going on within the Greek government.

How heavy this battle had been, became clear today when the news was spread that three Greek (deputy-) ministers had resigned from the cabinet. Among them was Marilisa Xeno-Jana-Kopoelo, the Deputy Minister of Foreign Affairs.

This afternoon, the Greek PM Lukas Papademos held an emotional speech on national television. The following snips come from the newspaper Volkskrant (www.volkskrant.nl):

Greek PM fears ‘chaotic, disastrous adventure’

Greece threatens to become ‘an uncontrolable chaos’ when the Balkan country cannot meet its financial obligations anymore. This was stated today by PM Lukas Papademos.

An uncontrolled default would send the country into a ‘disastrous adventure’, with possibly ‘a social explosion’

This Sunday or Monday the Greek parliament will make a vote of approval on a new austerity package; the condition for new European emergency loans. According to the government leader, this is a moment of ‘historical responsibility’.

The Greek PM Papademos used big words in his speech today. And I can imagine that, as he has to choose between two evils: a ruthless package of new austerity measures that will choke this tormented country in an economic coma, or the uncertainty and possible chaos of an uncontrolled default in March. I am glad that I'm not in Papademos’ shoes today.

But personally, I get more and more haunted by the feeling that the (uncontrolled) default might actually be better for Greece, than the austerity measures that have been forced upon Greece: at least as long as Greece can stay in the Euro. Leaving the Euro would almost turn the country in a third-world country within Europe, with a currency that nobody wants and nobody trusts.

Accepting these austerity measures will bring Greece into a catch-22 situation: the austerity measures cause economic contraction, economic contraction will cause less tax income and less tax income will cause new austerity measures on Greece.

A little more than one month ago, I made this diagram to paint the situation that Greece is in now. I called it the economic death spiral:

economic death spiral

The most frustrating part is that many (rightwing) politicians and people in the North-West European countries still look at Greek people as a bunch of lazy and corrupted slackers and spongers that are feasting away our tax money, while retiring at 50. And you can say that most Greek people work longer and harder than Germans and Dutch people, but they don’t believe you.

And while everybody in The Netherlands panics when the wages are lowered by only 5%, these rightwing politicians consider it as ‘normal’ when 15,000 civil servants are fired and minimum wages are reduced by 22% in Greece.

In the meantime nobody looks at the banks as one of the parties that played a decisive role in the occurrence of the Greek debt problem.

And Germany and The Netherlands don’t look in the mirror to ask themselves if their export surplusses and wage restraint politics didn’t add much to the problems of the PIIGS.

Let me be clear: Greece made a lot of financial/economic mistakes in the past and has been totally wrong by sending in fraudulently altered statistics that strongly exaggerated the economic health of the country in order to enter the Euro.

But still the country doesn’t deserve to be treated like a pariah state. And the Greek people don’t deserve to be starved into an economic coma.

However, instead of helping this country to get on its feet again economically, this is exactly what the European ministers are doing. And that’s a real shame.