Wednesday, October 21, 2020
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Greece and the EU, full-on political and economic conflict

Ignacio Pérez. Professor of the International Business Programme at the UAO CEU

The recent election result that occurred in Greece with the almost absolute majority of the leftist coalition, Syriza, provokes, once again, confrontations and tensions (some latent, others explicit) within the European Union. However, this time it is an all-out battle at all levels: political, economic, identity and financial. Let's take a look at it in parts. Let's start with the political part.

The EU has not yet made it clear what organizational architecture it has or even aspires to. In it we see elements of federation, confederation, union semi-centralized (or semi-decentralised, depending how you look at it) and even a common area of "cooperation and economic performance". In it, the several States of which it composed, in ceding some sovereignty policy to the European Parliament, the European Commission and the European Council, they lose the necessary tools and authority to undertake political reforms of a unilateral nature, without assessment and approval European Community institutions. In contrast, the EU also cannot unilaterally impose its proposals, conditions or even laws, as the political power is still in the hands of the Member States. In other words, neither can the states act without listening to and negotiating with the EU, nor can the EU impose policies, however much they are needed, without the approval in different states, at least in certain areas of jurisdiction that they have.

Moreover, it is precisely in this situation in which the Greek government finds itself: despite certain political constraints limiting their actions, thus having to give up part of their campaign promises, they know that without the EU, Greece would be a much weaker and impoverished country than it is now. However, failure to act in accordance with democratic principles (that is, have their projects adopted democratically by the people) also undermines the image and quality of European political institutions that demonstrate their inability to escape submission to the economic powers and public finance, and what is worse, private (non-European and even some from non-democratic countries or regions, further aggravating the situation, if that is possible). In short, the Greek election result shows that autonomy, democratic political will and brotherhood in the EU, far from controlling or being independent with respect to economic powers, are inevitably subject to them.

In any case, let's take a look at the financial problem

Here as well, it is Greece that has a problem. The macroeconomics professor at Columbia University, Xavier Sala-i-Martin, defines the example of the financial problems of the Greek State with a cognitive very graphic metaphor. The problem of Greek debt could be compared to an overflowing bathtub of water where the tap water does not stop pouring. In this metaphor, the water coming from the tap would be costs, and the overflowing bath water would be the debt and the size of the bath, the economic reforms that the country needs. In other words, Greece has monthly expenses that cannot be reduced or stopped (public salaries, pensions, social services, and so on.) that the tap represents that incessantly continues to spout gallons of water. These costs have to be borne by the state revenues, which are less than expenses, and so the deficit that continues to accumulate (the metaphor of water overflowing the tub) is generated. Finally, we have the size of the bath, which is not large enough to store water tap that keeps falling. To fix this, it would be necessary to switch to another larger (referring to the reforms in the Greek State necessary so that the costs are ultimately lower than income and thus get out of the situation of an alarming and irreversible deficit).

Of course, the problem is that if Greece wants to continue to be able to pay their services each month, they need funding and this, which cannot come from state revenues, has to come in the form of European loans or loans from private markets, which logically, to continue lending to Greece, require the guarantees of reforms that guarantee the payment of active debt. Namely, either Greece accepts the conditions and reforms imposed by creditors, or those same creditors will shut off -never better said regarding this metaphor- the credit tap to Greece, resulting in the total bankruptcy of the Greek state as we have known so far within a few months.

An economic problem more European than Greek

Therefore, it seems clear that the analysis of financial problem leads inevitably to the economic problem. Moreover, this is where the problem actually is, more European than Greek. The EU, when creating the monetary union, did not listen to those from conservative and progressive positions, warning them that it would be a failure if not preceded by -or at least come hand-in-hand with- a common European fiscal policy, where the European Central Bank would behave as such and not as a mere creditor of the national central banks.

In effect, scarcely a decade after the creation of the monetary union, along came the first major economic crisis of the Euro zone, asymmetric between the South and North, causing not only major economic recessions in the South, but inequality levels comparable only to that existing is countries after the 2nd World War. In all this, the European Central Bank still did not buy sovereign debt, and still continues without putting controls on those banks it lends lend money to at low interest so that, it's worth saying again, they in turn provide loans to institutions and citizens, thereby generating the economic revival so necessary in the countries most affected by the crisis.

However we are sick and tired of hearing how some of these banks used this money, not to give loans to citizens, businesses and institutions but to buy sovereign debt of individual states. This is obviously a monumental economic problem that needs to be resolve by the EU in the coming years: or the ECB buys sovereign debt of EU member states, thus reducing the risk premium and at the end of the day, mutualising the debt between States, or inevitably, many of these countries will be unable to pay interest on the risk premium and will fall into bankruptcy by creditors refusing to keep giving them money. The closest example of this is the state of California in 2008, which, despite having their public finances in a state of collapse, did not fall into bankruptcy because the US Federal Reserve mutualised the debt and bought State government bonds, thus avoiding that private markets or "vulture funds" did so.

No-one can be "expelled" from the Eurozone

To this situation we must add that, according to the economic mechanisms provided by Target-2, the ECB has an active debt to the German Central Bank which, if not remedied, will cause the collapse of the Eurozone as a whole. Nor can we ignore the blatant threats from some countries and agencies regarding the expulsion of Greece from the Euro, which are not only technically impossible according to the foundation economic principles of the Eurozone, but also but absolutely ridiculous. Thus, false threats apart, neither Greece nor Ireland nor any other country can be "expelled" from the Eurozone.

This economic crisis is compounded by the possibility of Greece looking for, in the short term, creditors outside the EU and its financial regulations. Examples such as China, Russia and Iran seem more than possible, given the negative European view on changing the loan terms of the Greek government. Moreover, to cite one example, the port of Piraeus in Athens is an element too "tempting" and "strategic" for it to be in the hands of some of the economic and regional EU (political) competitors. Thus, it should be emphasized that, far from what some neoliberal economists predict, the economic problem is with Europe, not with Greece.

The fourth major problem is undoubtedly one of identity. The EU is not addressing the claims of certain European regions such as Catalonia and Flanders, or obliging the countries they belong to find at a solution. Quite the contrary, it seems that the EU, in these cases, do not want to "meddle in national matters", rarefying the problem further. To these nation-state conflicts, we must add the controversy created by the emergence of extreme right parties in Northern Europe, feeding xenophobic stereotypes as it passes towards the south. This situation is creating serious problems for the common European identity in some states, regions and, ultimately, citizens, creating a sort of "Europhobia" that the EU cannot resist for long.

It should be noted that, although the rise of parties opposed to the current model of European integration in the south are radical left parties, this is not so in the central and northern European states, where this opposition to the EU ranges from conventional conservatism to the far right (in the case of France -Front National-, or in the UK -UKiP-). This new reality seems to reproduce situations with certain similarities to those that occurred in interwar Europe where fascism and totalitarian communism ended up producing such disastrous results.

It would be unfair to equate the situation of the 20s and 30s of the last century with the present, but it seems reasonable to start demanding an intellectual debate where finally, together, we decide which model of Europe we want. Either a Social Europe where political powers control and are superior to economic powers, or a liberal-conservative Europe in which states, elected political powers and legal systems act as mere guardians of the interests of big financial capital. We are not evaluating which one is better or worse. What is clear is that there is a logical and systemic incompatibility between democracy and a free market without political or legal control over financial capital. Unregulated capitalism is incompatible with democratic equality. In addition, democracy loses its meaning if it is outweighed by scamocratic powers. Greece (and its citizens) highlight and bring up to date, for the umpteenth time, St. Augustine's famous phrase of which recognises that "necessity knows no law."

#Dr. Ignacio Pérez is a political scientist and sociologist. He is a Doctor in Political Science with European mention for his thesis "Opposition to the European Union in South of Europe: the Portuguese, Spanish, Greek and Italian Case Associate professor in the International Business Program (IBO) of UAO CEU.



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