Crunch time for Greece: who are the winners and losers?

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European Finance Ministers are meeting in Brussels today for “make or break” talks, after negotiations to allow Greece an extension on its bailout fell through.

Greece is seeking for a temporary six month extension to its bailout agreement with the Eurozone, and committing to most of the austerity measures imposed on it by the original bailout agreement. Greece’s Prime Minister Alexis Tsipras has tweeted in the past 24 hours that talks with Francois Hollande (French President), and Angela Merkel (German Chancellor) have been “positive”, saying all want to reach a deal that will benefit both parties.

However, Germany has since beaten back the potential olive branch from Greece, saying that the conditions laid out in the original agreement must be adhered to.

Martin Jager, a spokesman for Germany’s Finance Ministry, is quoted in today’s i saying: “The letter from Athens is not a substantiative proposal for a solution.

“In truth, it aims at bridge financing without fulfilling the demands of the programme”.

So, who is right? Are Germany and the EU right to stick to their original bargains, and force Greece to continue with its bailout plans? Or should they cut them some slack, and see what happens? Indeed, the latter idea is one that is supported in a number of the newspaper Comment columns.

The Financial Times writes: “Geopolitics, far more than economics, is what is at stake. Europe’s politicians should be willing to do far more to keep Greece in the euro, and squarely in Europe’s political order”.

On the other side of the Atlantic, the New York Times Editorial section states that the eurozone must accept that “cutting Greece some slack now is the only good choice they have”.

Imagine Greece did emerge victorious from the talks. They have had their €240bn support package overhauled. What would happen? I am no economist, but the impact across Europe is predicted to be large. I refrain from saying “huge” as I do doubt that the consequences would be so great.

The stock markets would likely become very shaky, resulting in businesses becoming nervous, and potentially negatively impacting on the 28 EU countries. The UK’s main trading partner is the EU, and there is a fear that such a move from Greece would risk trade.

Would Greece have to leave the euro? Possibly. 80% of Greeks want to keep the euro, but it is possible that Greece could be kicked out of the euro, for risk of the currency being greatly weakened. This could result in businesses taking their capital and moving on, public sector jobs in Greece drying up, and greater belt tightening.

But perhaps it is required, if we consider the alternative.

Should Germany have its way, Greece would have a moderate decline, but an ongoing one.

Sadly, Greece has become a dead body in the EU, that the European Central Bank is dragging along in the hope that it will get back on its feet.

But wages are already rock bottom on Greece, unemployment is at 25%, and public services are suffering at the hands of austerity measures. If this continues, schools could be closed, businesses will leave the country, banks will have no desire to stay, and the consequences of lack of funding in state schools and prisons could mean increased crime rates.

And this would continue, until it comes to where Greece has to actually pay back the amount it has received in its bailout package. So, even when Greece managed to get itself together, it has to then pay back its debt.

Why, then, is the EU, and particularly Germany, refusing to give them some slack?

For the EU generally, it has a lot to do with fairness. Both Spain and Ireland had to suffer austerity and bailout measures when their economies were slumping. Furthermore, if Greece drops out, it may cause other countries considering cessation feel compelled to leave, too.

This would ultimately be a bad sign for the countries whose main trade is with the EU. A weakened European Union, is a bad sign for investment.

Here is where Germany – the largest European economy – comes in. Germany will clearly lose out in a weakened European economy. Already the German DAX is down 0.15% today, and the FTSE 100 up just 2.4% – waiting for the results of the talks in Brussels.

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Also, at home, if Germany allows Greece to have its way, the German government will have to admit to its voters that it failed in keeping the EU together.

These reasons ultimately outweigh the negatives for Germany, who – as the EU’s largest economy – will have to pay for most of Greece’s continued bailout package.

What does this leave us with, then? Where is the EU going?

Anti- EU  parties are gaining popularity across the Union, with parties such as Ukip seeking for greater state sovereignty from a growing power in Brussels. The example from Greece is a sign of just how a state’s sovereignty is at the whim of the EU, which is potentially damaging.

Perhaps a return to the EU being simply a vessel for trade, such as it was as the EEC, or EC, in 1957 and 1967 respectively. Thus, allowing for an open European market, but without the potential for infringing on state sovereignty.

But for Greece, it will be the biggest loser either way the talks go today. It will either have to continue making cuts, and receiving money from the ECB that it does not even want; or it will be let go, and have to weather the storm, but with the potential to bounce back stronger.

Who are the winners? Difficult to say. Germany may appear to be victorious politically, both at home and in the face of its EU partners, but how honest the smiles will be from the 27 other members may be the most telling sign of Germany’s role in Europe. Is it now too big for its own good, or the poster country of the EU?

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There are 3 comments

  1. swanpride

    Germany is still only one country in the EU with a small voting share. I am honestly not sure when this became “Greek vs Germany” instead of “Greek trying to convince the EU” as it actually should be.

    The thing is: I am fairly sure if the Greece had come to the table with a reasonable program with well researched numbers, the other states would have been willing to talk. But they came with a lot of hollow words, promises and tried to get the other states to agree to the same but reworded agreement multiple times. It is no wonder that this didn’t work out.

    Liked by 1 person

    1. Ross Brannigan

      This is true. Germany has the same number of votes in the European Council as all the others. I think the influence of Germany stems from its ‘fingers in pies’ power. Lots of countries rely on Germany for trade, and so its voice projects over the others.

      Greece is suffering, and perhaps it would be worth a shot and let them do as they have voted.

      Like

      1. swanpride

        I don’t think so, because it would only be a continuation of what brought Greece into hot water in the first place. What Greece needs is a complete overhaul of their system, and they refuse to do it. They cherry-picked what was expected of them and implemented everything which hit the population hard, but nothing which aims to get the government on the right track, because that would mean to get rid of a lot of corruption. And naturally none of the parties are really interested in, for example, putting a tax on shipping, even though that is the biggest business in Greece beside tourism (and that is only the most obvious example).

        The question is, would it really help the people in Greece to give more money to a system which simply doesn’t work?

        Next question is: If Greece is allowed to do what they please, why should other countries not follow suit? How do you explain to Spain or Portugal that not only Greece got better bail-out conditions than anyone else, but are now allowed to skirt out of the conditions they agreed on, while those other countries followed the rules (and are now better off, btw)?

        Greece hasn’t presented more than demands hidden in empty promises so far. They have three options now: Either they agree to the conditions, or the present a realistic plan how they intend to deal with their financial troubles in the next years (fast!!!!), or they pick the Grexit (which will most likely hurt them more than anyone else).

        BTW, where do you think the soup kitchens and other help organisations which are currently working on helping out the suffering people in Greece get their money from? The people living in the other countries are not blind to what happens to the people in Greece. They just don’t think that giving the government more money will help.

        Liked by 1 person

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