In the Greek bailout episode the Greek government has been behaving much like the self-pitying Antonio from “The Merchant of Venice,” while the EU has been posing as a rather heavy-handed Shylock. Despite being aware of the damaging consequences of a Greek default and potential exit from the Eurozone, the EU seems intent of having its pound of flesh. By subjecting Greece to additional austerity provisions, it may be risking the revival of the Euro financial crisis—this time with serious geostrategic implications.
For five years the Greek people have been dealing with a series of austerity measures that have crippled their economic prospects. The Greek economy has contracted a jaw-dropping 25% during this period, forcing Greece into a deep recession that now borders on depression, with a 26% unemployment rate and a debt level of 180% of GDP. The resulting loss of jobs and livelihoods has been staggering; tens of thousands of Greeks are barely getting by.
But on the eve of its default this week the Greek government capitulated and at the 11th hour informed the EU it would accept additional austerity after all, only to be told by the EU that its offer had expired. Adding insult to injury, a senior EU official stated “The previous program has expired. So now we need to start new negotiations as regards a new program.” Tragically, Greece may no longer be in the Eurozone by then.
It should not have come as a surprise that the Greek people, no longer in possession of their economic freedom, decided to use their political freedom to elect the left-wing Syriza party that promised to end the harsh austerity provisions previous governments were forced to accept. EU leaders have called the embattled Prime Minister Tsipras “reckless” whose actions “are not worthy of the Greek nation,” further expressing “shock” that he had the temerity to call a referendum for July 5 about which they feel “betrayed.”
This modern day morality play did not need to end like this. The Eurozone financial crisis came to an end by 2014, which EU leaders actually prolonged by forgetting their Keynes and implementing fiscal austerity measures that had the opposite effect of the stimulus policies their economies needed. Academics understood this, as the faulty data from Kenneth Rogoff and Carmen Reinhart’s infamous article was exposed and Professor Mark Blyth published data demonstrating that every country in which austerity was enacted actually saw its debt go up.
But this appears misunderstood by European politicians, who for reasons only historians may be able to decipher have continued to claim that austerity will decrease debt and spark economic growth. Despite experiencing low growth and increased debt instead, European leaders continue to insist on austerity as their remedy of choice. Instead of writing off a portion of Greece’s debt and suspending budgetary and pension cuts until its economy starts growing again, they have pressed for additional austerity.
Greece meanwhile has been forced to implement strict capital controls, which have place its already moribund economy into a virtual chokehold. Having missed a $1.6 billion loan payment to the IMF, it is now in the early stages of default. Furthermore, Greek banks are on the edge of failing, even after capping the amount their account holders can remove at the $70.
It is certainly the case that Greece has been living beyond its means for decades, with overly generous pensions and vast numbers of bureaucrats who collected salaries but did not actually work. However, this is the fault of a succession of Greek leaders, as opposed to the citizens themselves. Yet it is the citizens who are now suffering from austerity’s effects. At the same time, they have been betrayed by their own leaders, as Tsipras and his equally erratic ministers have squandered their golden opportunity to ally with Italy and France to persuade Germany to offer less onerous austerity.
This entire episode is eerily reminiscent of the manner in which the EU treated Cyprus two years ago in the midst of its bailout. Just like the EU treated Cyprus different than it treated Italy, Ireland, Portugal, and Spain—effectively putting its boot on the neck of Cyprus in retribution for its alleged sins—it is now doing the same to Greece. Like then, EU leaders risk fanning an economic crisis unnecessarily.
Perhaps even more worrying, there are also geostrategic risks in play. By pushing Greece beyond the brink and potentially out of the Eurozone, EU leaders will be responsible for driving Tsipras right into the open arms of Vladimir Putin. Russia had been hoping to lure at least one EU country to prevent the EU sanctions from remaining in place over the Russian destabilization of Ukraine. Forced out of the Eurozone—though ironically still in both NATO and the EU—Greece will likely seek to curry favor with Moscow.
In “The Merchant of Venice” Shylock only hurt himself by his overzealousness, forfeiting much in the end despite initially being in the right. The Greek government, by playing the part of the sulking Antonio all too fittingly, by contrast has also played its part in this slow motion tragedy.