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.
— Alexis Tsipras (@tsipras_eu) February 19, 2015
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.
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?