While the hopes of European leaders that Greece might escape the economic woes in which it has been entrenched for several years may be admirable, it is looking clearer by the day that such hopes are mere fantasy.
To many, it was quite apparent that there was only ever going to be one outcome to this long and expensive debacle, and now more than ever it appears Greece may be on the verge of leaving the euro, with injurious consequences for others in the currency area. Europe is now left pondering how much damage has been caused by kicking the Greek can further and further down the street, and how to deal with the consequences of a potential exit from the Eurozone by Greece.
Despite a moderate withdrawal from the headlines in recent months, Greece’s problems have never really looked like being resolved. European countries became fully committed to rescuing Greece when, as part of two huge bailouts, Greece was given loans totalling 240 billion euros, more than half of Greece’s debt to private creditors was written off, and remaining loans were restructured to include lower interest rates. These measures would have provided Greece with a narrow yet feasible path to escape, but for the necessary conditions placed upon the deal.
Those leading the rescue mission, primarily Germany and France, insisted on fundamental changes to the economic practices of Greece. Indeed, it was fiscal responsibility, government inefficiency and excessive spending on such things as pensions and unemployment benefits that got Greece into this mess in the first place.
Such changes have consisted most prominently of severe austerity measures, including increased taxes, reform in such areas as pensions and major government spending cuts. The changes have not gone down well with the Greek people and the economy has continued to shrink month after month. The changes have been necessary, but such shock therapy has inevitably presented major obstacles to getting Greece’s economy back on the right track by making growth all but impossible.
The dilemma now appears to be coming to a head once again, as last week Greece failed to elect a new government since no party could gain the necessary majority and repeated attempts to form a coalition have failed. The people are very much divided over their desire to remain in the Eurozone and see this problem through, and are equally as divided over their opposition to the austerity measures currently crippling the economy. As a result of this failure, a second election is set to take place on June 17, and all eyes are on the left-wing party Syriza. It has stated clearly that if elected, it plans to restructure the EU and IMF bailout deal to better serve the people. Germany, however, insists the terms are non-negotiable.
The consequences of this outcome could be disastrous for many involved. If Syriza gains power and refuses to play by the rules, European countries will cut off continued funding to Greece, as they have already threatened. This will lead not only to bankruptcy and a massive default on Greece’s debts, but an inevitable departure from the Eurozone altogether. Greeks are therefore not only electing a new government in June, they are effectively deciding the country’s future in the euro currency area.
Until now, Greece’s return to the Drachma has been little more than a hypothetical, yet is now being treated as a very real possibility. Such a move would be bad for Europe and worse for Greece. Reverting to the old currency would bring a host of problems, not least of which being virtually guaranteed inflation on a huge scale. Fears of this have led many Greeks to remove all their savings from the banks in what is known as a “bank run.” Fear among citizens, as well as foreign investors, has led to much speculation and turbulence in the global markets. The result is that the euro is currently at a four-month low against the dollar, and the entire global financial system is steeped in uncertainty.
There is little light at the end of what has been a long and dark tunnel for Greece and Europe through this entire problem, and while immense efforts have been made to rescue Greece and maintain some degree of stability in Europe, one wonders if it has all been an expensive and misguided waste of time.