-OpEd-
MUNICH — Some like it hot, or so it seems. Among them is the new Greek Finance Minister Yanis Varoufakis. Hot-headed, clad in motorcycle boots and without a tie, he demanded radical debt pardoning and declared an end to Greek cooperation with the Troika of the IMF, European Commission and European Central Bank that’s been overseeing Greek loans.
The rapid crash of the financial markets, however, seems to have blunted Varoufakis’ sword.
Instead of a complete cancellation of debts, Varoufakis presented moderate but questionable proposals about how creditors of the highly indebted country could accommodate Greece’s requests. In addition to this, he declared that his country would never again register a loss, interest payments excluded, of course. Those who know of the long saga that is the Greek deficit sinkhole, including data manipulation, will be left agape at such an utterance.
Could this be the glimmer of hope that the new Greek government isn’t going to lead Europe to the brink? It appears to be a sign of a return to realism in financial politics at least. Complete debt pardoning couldn’t have been approved lightly, not just because it would have been the second time that this was done, but also because of the financial repercussions for those European countries that are repaying their debts as well as European citizens, who would lose a lot of money in the process.
Debt reduction would not even be truly beneficial to Greece itself at the moment. Europe’s creditors have already pushed the interest payments as far back and reduced the interest rates as much as possible. A remission would not alter the situation in the short term. Much more pressing are current financial requirements. The attempt to secure another loan from the euro capital market was met with the same broad indifference as in 2006.
It’s much more difficult to interpret the conciliatory tones, to see if these are a sign of the new government truly being on course. The debate about debt and the question of whether the Troika or another committee is to control the reforms in Greece have displaced the crucial question: How are these reforms to continue? This is the key question, not just for Greece itself but also for Europe. The euro crisis has highlighted how differently each country has developed since the European Monetary Union of 1999.
The countries still facing the consequences of the crisis got into debt due to the attractive euro interest rates and could not sustain its inflated level of prosperity as they lost out to competitive products.
Reforms to support economic growth and exports are the only way out of this dead end, as the successes of Ireland and Spain have shown. Under pressure from all partner states, and with huge sacrifices, all the indebted states have taken this particular route. But what’s going to happen if Greece leaves this arduous path? There are many in Italy, Spain and Portugal who would wish for a return to the comfortable past. And let’s remember that elections will be held in Spain and Portugal this year.
Greeks have themselves to blame
The remarks made by new Greek Prime Minister Alexis Tsipras and his ministers might entice us to be skeptical, whether it be about the expansion of striking rights, the reappointment of civil servants, reinstatement of the 13th monthly pension payment or the end of privatization.
The new government deserves credit for its attention to the poor who have suffered most under austerity policies. What Europe can do to boost the economy should be considered. This, however, should not be confused with a return to a dysfunctional economic structure ruled by monopolies, inefficient state-owned enterprises and a civil service that outnumbers that of most other EU states by two to one.
It was mentioned quite often in recent times that Greek wages dropped throughout the crisis. But as part of that truth it should also be noted that wage costs rose by 20% in the first 10 years of the euro’s existence, while they actually dropped in Germany.
In stark contrast to what Tsipras’ popularity would suggest, the Greeks have caused most of their problems themselves. The consequences of the crisis may not have been as severe if the political elite had collected taxes properly from the country’s wealthy. In regards to that, however, the change in government may be good news. Tsipras doesn’t descend from the political elite that held the country ransom for years through favoritism. Maybe that’s why he seems more earnest when he promised Wednesday to end tax evasion and corruption.
All in all, it does nonetheless seem as if the prime minister’s suggestions point to a path of regression rather than progression. His assumption of office therefore promises more dangers than true chances. And these are dangers that concern all of Europe.
