Greece won’t be allowed to ditch austerity

The first round of the battle for the euro is over, and Germany has won.

Gwynne Dyer

The whole European Union won, really, but the Germans set the strategy. Technically, everybody just kicked the can down the road four months by extending the existing bailout arrangements for Greece, but what was really revealed in the past week is that the Greeks can’t win. Not now, not later.

The left-wing Syriza Party stormed to power in Greece last month, promising to ditch the austerity that has plunged a third of the population below the poverty line, and to renegotiate the country’s massive US$270 billion bailout with the EU and the International Monetary Fund.

Exhausted Greek voters just wanted an end to six years of pain and privation, and Syriza offered them hope. But it has been in retreat ever since.

In the election campaign, Syriza promised 300 000 new jobs and a big boost in the monthly minimum wage (from US$658 to US$853). After last week’s talks with the EU and the IMF, all that’s left is a promise to expand an existing programme that provides temporary work for the unemployed, and an “ambition” to raise the minimum wage “over time.”

Syriza’s promise to provide free electricity and subsidised food for families without incomes remains in place, but Prime Minister Alexis Tsipras’ government has promised the EU and the IMF that its “fight against the humanitarian crisis (will have) no negative fiscal effect.” In other words, it won’t spend extra money on these projects unless it makes equal cuts somewhere else.

Above all, Syriza’s promise not to extend the bailout programme had to be dropped. Instead, it got a four-month “bridging loan” that came with effectively the same harsh restrictions on Greek government spending (although Syriza was allowed to rewrite them in its own words). And that loan will expire at the end of June, just before Greece has to redeem US$7 billion in bonds.

So there will be four months of attritional warfare and then another crisis — which Greece will once again lose. It will lose partly because it hasn’t actually got a very good case for special treatment, and partly because the European Union doesn’t really believe it will pull out of the euro common currency.

Greece’s debt burden is staggering — about US$30 000 per capita. It can never be repaid, and some of it will eventually have to be cancelled or “rescheduled” into the indefinite future.

But not now, when other euro members like Spain, Portugal and Ireland are struggling with some success to pay down their heavy but smaller debts. If Greece got such a sweet deal, everybody else would demand debt relief too.

The cause of the debt was the same in every case: The euro was a stable, low-interest currency that banks were happy to lend in, even to relatively low-income European countries that were in the midst of clearly unsustainable, debt-fuelled booms. So all of the EU’s southern members (and Ireland) piled in. But nobody else did it on the same scale as the Greeks.

That is why the sympathy for Greece’s plight in other EU countries is limited. Moreover, the EU, and especially the Germans, have managed to convince themselves that “grexit” (Greek exit from the euro) would not be a limitless disaster.

The other “PIGS” (Portugal, Ireland and Spain) are in much better shape financially, and the European Parliament in Brussels no longer fears that the Greek “contagion” will spread irresistibly to those countries.

Neither does it think that a Greek departure from the euro would bring the whole edifice of the single currency tumbling down. And it knows that the vast majority of Greeks don’t want to leave either the euro or the EU — so it’s playing hardball.

When the interim deal was made public on February 24, Prime Minister Alexis Tsipras put the best possible face on it, saying that Greece had “won a battle, but not the war.” In fact, he lost the first battle, as he was bound to. It will take him longer to lose the whole war, but that will probably happen too.

Dyer is a London-based independent journalist.