Going… Going… Greece on the Brink

Going… Going… Greece on the Brink

Unless the country implements reforms, the EU and IMF won’t release the next tranche of bailout funds. What happens if they can’t reach an agreement?


Man-made catastrophes tend to happen in slow motion. The danger is evident but the steps required to avert it are too difficult, or controversial, or unclear. So we keep leaning over the parapet, just a bit longer, just a little further; the tipping point is only obvious when it is too late.

On the European debt crisis, we are now in planking mode. In a marathon teleconference set to continue today, Greek finance minister Evangelos Venizelos is desperately trying to hammer out a last-ditch deal with the EU and the IMF, which have put off the decision to release the next tranche of Greece’s bailout because the country has once again failed to implement agreed reforms and austerity measures. The program voted through the Greek parliament in a fog of tear gas at the end of June has been rendered inadequate by delay—and by the fact that the measures taken so far have only plunged the country further into recession. According to Greek newspapers the creditors’ demands include the lay-off or suspension of 70,000 public employees by the end of 2012; further cuts to wages and pensions; higher social security contributions; and yet more tax rises.

The threat is that if the EU and the IMF don’t like what the Greeks come up with they will take their toys and go home, leaving Greece to—what, exactly? And with what consequences for the rest of the Eurozone? Beyond the fact that the Greek government is due to run out of cash in mid October for wages and welfare payments, nobody seems to know. The Financial Times has produced a handy graphic showing the chain reactions that might be triggered by default and, in a worst-case scenario, lead to a breakup of the euro; the steps along the way include “market turbulence,” “economy stalls,” “streets explode” and “social misery.” Like a malign goblin bent on making mischief, the rating agency Standard & Poor helped those predictions along today by downgrading Italy’s debt. The markets bumped down half a floor at stomach-churning speed.

In Greece, apart from deepening poverty, the pattern of “last chances” followed by painful reprieves has produced a stifling sense of dread, anxiety and drift. With each round, the government makes promises it lacks the will or the capacity to keep. Paralyzed before the task of ending large-scale tax evasion, unwilling to slash its public sector base (some, but not all, of whose members are also its clients), unable to sell the country’s assets even at Walmart prices, riven by dissent, George Papandreou’s socialist administration is flailing for quick fixes to offer its creditors. An ill-thought-out universal property tax announced this month, to be collected through electricity bills and enforced by the threat of power cuts, was meant to raise 2 billion euros; it failed to convince the money men at the EU and IMF. Rumors of an impending election or referendum don’t help. It’s not only the Europeans who’ve had it with Greek politicians: at home, disgust with the entire political class is close to boiling point.

Meanwhile the Eurozone’s leaders are just as paralyzed, divided and ineffective. Individually, they all defend the single currency (“If the euro fails, Europe fails,” in Angela Merkel’s phrase); collectively, they won’t step up to the measures needed to save it. Torn between placating their own electorates (who don’t want to cough up for the Greeks, the Irish and the Portuguese) and appeasing the markets (which want a quick resolution), they fudge and prevaricate; the structural problems of the Eurozone—just like the structural problems of the Greek economy—remain beyond their reach.

But the game can’t go on for ever, and given the general failure of leadership and will, the gathering consensus is that Greece must be cut loose. Hence the new tougher line from the EU and IMF. Back in June, EU Commissioner Ollie Rehn declared there was “no Plan B” for Greece; but what he actually meant was that there was no Plan B yet . Since then, Merkel especially has been under fierce pressure not to keep throwing good money after bad; the wizards in her finance ministry have been working away on plans to protect the rest of Europe from a Greek default. That default has been “priced in” to the markets for some time; central banks are preparing for it as if for a hurricane, pledging extra liquidity to keep the system afloat. Judging by the rating agency Fitch’s announcement today, the preferred scenario now is for Greece to default on its loans without leaving the Euro—which, less than three months ago, was seen as impossible. The stage is being set for a collective sigh of regret for a peripheral country which just couldn’t get it together—and a barrage of talking heads explaining why this is the best outcome for the Eurozone, why the Italian downgrade can now be contained, why the FT’s worst-case scenario just won’t come to pass, at least until the next big crisis comes along.

Will that be such a bad thing for Greece? Plenty of learned economists and serious commentators argue that the country should long ago have jumped before it’s pushed, as Argentina did in 2002. I  hope they’re right; I wish I thought they were. But their theories presuppose a faith in Greek politicians that I can’t quite share. They see a new beginning with the capacity to devalue, reform and develop in a more sustainable way. I see the government falling; an election that brings Antonis Samaras’s New Democracy to power on a populist and xenophobic platform; corruption and tax evasion continuing as before; people—even more than now—rummaging through rubbish bins; and all the country’s assets sold off anyway to multinational corporations, Russian and Chinese developers, anyone looking for a cheap deal in a sunny place. I have never, ever wanted so much to be wrong.

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