Europe’s Existential Crisis in Greece
Short of sending the gunboats, it’s difficult to imagine anything more Greece’s creditors could’ve done to intimidate voters into accepting the austerity ultimatum presented to their government. The weekend the referendum was announced, The European Central Bank froze support to the Greek banking system, forcing the government to impose capital controls. It’s a distressing experience losing a wallet, imagine being locked out of your bank account? That’s been Greek life for a week with a limit of sixty euros in daily withdrawals. On top of this, in a coordinated move European leaders made appearances or released statements saying a no vote in the referendum would mean a Greek exit from the common currency. To complete the blitz of intimidation, the Greek media and much of the international media took photos of every bank queue and empty shelf, all while circulating any rumor.
Despite all this, 61% of Greek voters delivered a resounding no on Sunday, painting the entire Greek political map one single color rejecting imposed structural adjustment. Hopes were suddenly dashed across European capitals and EU institutions for a yes vote that could pave the way for a technocratic government that would obediently implement whatever creditors proposed. European authorities are incredulous that after five years of telling Greeks that austerity was the sacrifice necessary to stay in the euro, Greek voters don’t believe another year and a half of cuts and tax increases will guarantee their membership.
This puts the whole European project in a moment of existential crisis. If it doesn’t accommodate Greece and continues using notionally independent institutions like the European Central Bank as a siege weapon on the Greek economy, it provides all the ammunition necessary for euroskeptic political forces to tear the project to sheds over the next decade. Alternatively, if Europe makes meaningful concessions to Syriza, it risks an electoral storm sweeping the south of Europe with elections this fall in both Portugal and Spain.
The designation of Alexis Tsipras as a radical and a threat to the European order speaks to the terror felt by Europe’s geographic and political center over any attempt to alter economic policy. Syriza has sought to renegotiate the 2010-2012 crisis response of deficit limits, austerity as precondition for “solidarity” loans, and full repayment of the debt. Creditors were able to extract these concessions from Europe’s periphery as the alternative, they argued, to expulsion from the euro and financial collapse. The streets of Europe resisted this settlement through social movements in 2011 and a pan-European general strike in 2012. Out of these social movements, parties like Syriza and Podemos would find a significant political base to build upon.
European leaders applaud themselves and the austerity regime for ending the financial crisis yet this is an outrageous act of historical revision. Forcing out Berlusconi and replacing him with Mario Monti, an unelected technocrat, didn’t end the sell-offs in Italian bond markets in 2011 and 2012. Only the intervention by European Central Bank president Mario Draghi to do “whatever it takes” ended the sell-off. Italy and Spain, with the backing of the ECB, avoided the full bailout programs seen in Portugal, Greece, and Ireland, but by then the social damage across Europe’s periphery was already done.
Seven years after the world financial crisis of 2008 double digit unemployment persists across Europe’s periphery (over 20% in both Greece and Spain), unemployed youth continue to emigrate en masse, a suicide epidemic has taken hold, and education and healthcare funding have been slashed. Opponents of austerity have rightly called this a humanitarian disaster that requires policy action to restore electricity and undo pension cuts for the most vulnerable. This is what Syriza was elected to do, and this is what European authorities consider incompatible with the European project.
Fear of an axis of leftist governments on Europe’s periphery left creditors with a perverse incentive in negotiating with the newly elected Greek government: they had to make offers Syriza couldn’t hold up as a victory. The talks went on for five months and concessions by Syriza weren’t matched by anything more than lower primary budget surplus targets, something regularly conceded to other crisis affected countries. Renegotiating the Greek debt burden stayed completely off the table while creditors insisted upon the Syriza government introducing pension cuts and tax increases, forcing the party’s fingerprints onto the austerity dagger.
Syriza thought it would have a better bargaining position in negotiations given the potential financial contagion from what would be the biggest sovereign debt default in history. It hoped to win support of center-left governments in Rome and Paris in negotiations, allowing it the policy space to implement a sort of humanitarian Keynesianism in Greece to address the worst human suffering from five years of austerity. But France and Italy were more interested in squeezing out what’s left of the post 2008-2009 global economic recovery than risking an open clash with Europe’s austerity regime.
This all now leaves Europe in a very dangerous position in the next few days, months, and years. In seeking Syriza’s total capitulation it may force the Greek government to reintroduce the Drachma. Punitively forcing Greece out of the Euro would make the European project permanently toxic for the left across the continent, leaving just the eroding political center to defend it. The sympathy toward Syriza by some in the Portuguese and French socialist parties speaks to how extensive the damage could be. Should Alexis Tsipras take Greece out of the euro he’ll be denounced as the radical who broke Europe, but the truth is this is a catastrophe by Europe’s extreme center; let them own it.