Good news stories are something of a premium in Greece at the moment. Last night’s victory over Russia in Warsaw at the European Championships made it hard for any football supporter not to be delighted for the tournament’s rank outsiders. The energy and celebrations at the end of the game sent the thousands of Greeks fans in the stadium into ecstasy, whilst much of the country greeted the news in the same way back home.
Yet, this is far removed from the shock and optimism after the country’s victory in Euro 2004. Greece was a founding member of the Euro zone economy, its people were becoming wealthier and EU money was investing in capital projects that would help improve the way of life. That Greece is now a distant and rose-tinted memory. As the financial crisis began to bite in Europe, European delegates began to understand how desperate the situation in Greece had become. Several countries including France and Germany had broken the rules of the European Central Bank’s growth and stability pact. The pact stated that a country’s budget deficit should not exceed 3% of its GDP and its national debt should not exceed 60 per cent of GDP. Little did they know how Greece managed to stay in between the lines.
Even when the Euro finally became an economic reality, many officials believed that Greece simply wasn’t ready to join. The underlying currency and economic conditions would have made convergence for the whole of the Euro zone difficult. When the Greek government collapsed and its successors opened the books, the whole of the world was shocked. Previous administrations had managed to ‘cook the books’ on an enormous scale, using accounting methods that had placed huge chunks of the Greek national debt off the official records. Overnight officials discovered that Greece was running annual deficits of 12% with a national debt of 129% of GDP.
The downward spiral has continued from there since. As successive Greek governments have implemented severe austerity measures in return for EU bailouts, the social contract for ordinary citizens has begun to dissipate. Cuts to the public sector, higher taxes as well the inability to feed their families has seen Greeks take the streets on a daily basis. News footage no longer depicts Athens as the birthplace of democracy, but a city defiled with graffiti and polluted with tear gas. The language that invented the words crisis, chaos and catastrophe has brought them to life.
The Greeks inability to trust any politician or economist makes its long term future even more indecisive. Since the crisis unfolded, over 10 per cent of the population has emigrated in search of work and most likely a settled life. With them, they have taken their money. Over a third of Greek bank deposits have left the country since the crisis began, €9 billion has left since the beginning of the year.
It is unsurprising then that many have turned to alternative parties in the recent elections. Not only has the far-right party Golden Dawn managed to generate great support, but the radical left party Syriza has taken votes away from the tradition socialist party Pasok. Syriza, led by its charismatic and young leader Alexis Tsipras has vowed that Greece will remain in the Euro but stop the austerity measures by reneging on its outstanding debt. A victory for Syriza in the re-run of last month’s general election is more than likely to be the first step of Greece leaving the Euro zone.
Yet how rational can the Greeks be at a time like this? Many have been unemployed for over two years, whereas those in work have not been paid for months. They are seeing all around them that a country in Western Europe has become destitute and suffering affliction that you would only associate with a war-torn nation. Suicide and food kitchens are part of the daily routine. Any political party that gives them a glimmer of hope is bound to cajole them to vote that way. Yet it is an entire fantasy. Greeks long to remain in the Euro because it once gave them everything they wanted, yet remaining in it would entirely undermine their recovery. The Syriza party may be acting out of goodwill, with a hue of opportunism, yet even they wouldn’t be able to remain in the EU without paying their debts. It would only lead to other debt-ridden countries in the Euro zone to doing the same, pushing the overall picture in the wrong direction.
The problem beyond both inside and outside of Greece is the fact no one is certain of what will happen next. The recent bail out of Spanish banks pushed Spanish and Italian bond yields to historical highs. The EU Troika may have finally laid down contingency plans for future crises, but inevitably they have acted too little and too late. If Greece falls then the economically uncompetitive Italy and Spain are bound to fall next, bringing down the already bailed out Irish and Portuguese. Capital flight may have created a safe haven in the non-Euro member UK, but its banks are heavily indebted to Spanish and Italian banks, who’s not to say that the UK could fall into another deep financial crisis as well?
The questions surrounding Euro bonds seem futile, they may avert short term crises, but they do not underwrite the fundamental problems that these countries face. The German Chancellor Angela Merkel is increasingly becoming isolated as world and EU leaders ask her to react, whilst her own country feels that their prudence should not be sacrificed for feckless southerners. If the Germans put forward the bulk of an EU firewall would it do anything or is it too late? Would a Greek return to the drachma see an instant return to growth or would it lead to high inflation. These are all the questions that no one seems to have the answer to.
The only thing that is certain is Greece will play Germany in the quarter-finals. Who will win? I’m not sure. We thought Greece would leave earlier, but they seem to have a knack of hanging on and causing a bit of damage. The football may be important to most, but Monday’s results will have implications for us all.