Can Greece’s democratic institutions keep it in Eurozone?

Eurogroup meeting. March 2015. Yianis Varoufakis, Greek Minister for Finance (in the middle), Klaus Regling, European Stability Mechanism Managing Director (on the right). (European Council – Council of the European Union Audiovisual Services, Shoot location: Brussels – Belgium, Shoot date: 09/03/2015).

Paris, Washington and Brussels categorically reject the idea of a Grexit, while Berlin is still loudly insisting that the Eurozone can weather at a cost Greece’s secession. Behind closed doors though, the German decision makers are also not at all sure about that. Greece’s exit from Eurozone has lately become the talk of the town not without good reason. It seems that during the last two weeks negotiations between Greece and its euro area partners have hit the reef and an experienced observer could conclude that even the Graccident that is an accidental and more dangerous Grexit, has come closer than ever. But is it like that?

On such a mystifying backdrop, colored more darkly by the rising tensions between Athens and Berlin, a lot of important people thought it was high time they intervened. The tensions between Greece and Germany hit a boiling point last week. The Greeks went so deep in the risky terrain and remembered that they have received nothing from the Germany as WWII indemnities. On top of that they say that Berlin still has to repay Athens in full a 1942 standard loan which Germany ‘mysteriously’ stopped servicing in 1953.

It was high time they intervened

Frictions between the two governments seemed getting out of hand last Thursday when the German minister of Finance Wolfgang Schäuble said that his Greek counterpart Yianis Varoufakis is “stupidly naïve”. The statement provoked a diplomatic incident with the Greek embassy in Berlin officially demanding clarifications. Finally the issue was settled after the German side blamed the translation of a complex Schäuble narration about the tête-à-tête dialogue he had with Varoufakis. The problem is that the state of internal public opinion in the two countries in relation to each other may reach a dangerous steaming point at any moment.

The cycle of interventions

At that conjuncture, a cycle of interventions opened mainly aimed at supporting Greece. It was Pierre Moscovici who spoke first and he didn’t chew his words. The EU Commissioner for finance and the euro speaking at an interview with the most relevant media for this affair, the ‘Der Spiegel’ magazine, went that far as to warn that “a Grexit could be the beginning of the end for Eurozone”. This is in direct contrast with what Berlin believes.

Of course the question of how and if Eurozone can withstand a Grexit is not new. However, it acquires special importance every time Greece is struggling to stay afloat, while negotiating its financial survival with her euro area partners. Inappropriately though all and every Greek government of the past five years used the negative answer to the above question as its strongest argument in order to get the maximum from their peers.

2015 is not 2012

Nonetheless this time Eurozone is not the same as in the spring of 2012, the last time that Greece had the same problems. The most important variation in today’s frame is that Italy and France have grasped the fact that their economies cannot start growing again under the austere Teutonic economic orthodoxy. The beginning of the new era in Eurozone dawned last January with the €1.14 trillion that ECB decided to spend over the next nineteen months buying sovereign bonds. The ECB in this way is indirectly helping the languishing with the fiscal restrictions Eurozone governments to borrow cheaply and spend more on growth policies. For this reason Italy, France, Belgium and some more euro area countries cannot and would not follow the Germanic inspiration fiscal restrictions and incomes austerity any more.

Then Moscovici’s warning that a Grexit may mean the end of Eurozone has more meaning in it. What Germany demands from Greece in order for the Eurozone to continue helping the latter is that Athens continues applying harsh austerity. This is exactly though what the new government of Alexis Tsipras cannot accept. In a way then, Moscovici, in supporting Greece so plainly, is making it clear to Germany that his own country France and some others cannot play any more by Teutonic rules.

Save Greece to save yourself

Last week Jean – Claude Juncker the President of the European Commission in a less unwavering manner followed Moscovici’s remarks. Juncker, after hosting Tsipras for more than 90 minutes in his Berlaymont office last Friday said “This is not a time for Division, this is the time for coming together”. He obviously opposed in this indirect way the Germanic animosity against Greece which has assumed very nasty forms during the last few days.

The Commission is now clearly on the Greek side for one more good reason that Germany itself doesn’t deny. Well informed sources in Berlin say that despite the fact that a Grexit doesn’t represent any more an infeasible financial exercise, the German government is very much worried about the geostrategic repercussions such a development may have. In the troubled regions of southern Balkans and in the Eastern Mediterranean a distanced from Eurozone Greece may drastically destabilize everything. Athens may even side with Moscow in return for cheap oil and gas.

Alarm bells in Washington and New York

There are more problems though a Grexit can cause. Last Friday the well known economist Nouriel Roubini said that “a Grexit is out of question” because he added that “the repercussions are immense”. He also mentioned the geopolitical danger if Athens sided with Moscow. Not to forget what Barack Obama told Angela Merkel some weeks ago about Greece. He said: “Angela, the United Sates expect soon the German appraisal of how could Greece return to growth remaining within the Eurozone”. By saying this, Obama, made Merkel responsible for Greece’s position in Eurozone.
In short both the Washington top decision makers and the New York bankers who run the western world and that Roubini authentically represents want Greece to stay in the euro area. None of them would buy a German argument that Greece failed Eurozone’s fiscal austerity rules by a few percentage units of GDP. The same seems now to be true for Brussels and Paris. And nobody cares how much this may cost to Berlin.

Dark skies in Athens

Of course this doesn’t mean that Athens is to have a sunny stay in Eurozone. Even the most important ally of Athens in the Eurogroup, the French minister of Finance Michel Sapin, doesn’t miss the opportunity to mock the Greek fixation with some words like ‘Troika’ (EU-ECB-IMF) and ‘Memorandum’ (a deal providing so far bailout finance and enforcing austerity). Already in Athens they talk about ‘quartet’ (plus the paymaster that is the European Financial Facility-EFSF) and a ‘new agreement’ instead of a memorandum.

The serious problems for Alexis Tsipras and the Eurozone will appear soon when they will start writing down the new agreement. It’s impossible that the new contract contains financing without austerity, much like in the recent past. Then the Greek government will have to pass it from the Athens Parliament. Undoubtedly a lot of people will surely denounce it as a thing of the past, just introducing austerity in the old manner.

Can the Greeks do it?

This is not a problem only for Tsipras but for Brussels too. Politically it may prove easier for the government to pass such a new arrangement with the euro area through a referendum, rather than relying on its own Parliamentary group. The 149 SYRIZA MPs in a house of 300, comprise a lot of people from the not so far away times, when SYRIZA was the extreme leftist group of activists struggling to remain in Parliament by attracting a mere 3% + one vote. Then many of them have already explained they are not going to support a new agreement with old contents. Predictably a referendum may become the only democratic way to keep Greece in Eurozone.

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