Negotiations between the new Greek government and the European institutions are fast approaching the point where lines will have to be drawn and clear positions taken. At that point, the likelihood (or not) of reaching an agreement will become clearer, writes Ernest Maragall MEP.
Ernest Maragall is an MEP in the Greens/EFA group, from Catalunya and a former minister of education.
So this is an ideal moment to pause and objectively analyse some of the recent history, without preconceptions, and to review the steps that have led the country to the current situation.
Only then will we be able to find a way forward that is actually likely to succeed. And it is in all of our interests as European citizens to find a way forward.
We must begin by dealing with past mistakes, so that they do not become intolerable burdens for future generations of Greeks. I am of course referring to the enormous foreign debt accumulated during the first seven years of the euro, which increased throughout the second seven years as a result of bailouts under impossible conditions, and the process of austerity forced upon Greece.
But we must keep in mind two truths: first, the debt is almost impossible to repay, and secondly, the accumulated debt is not solely the responsibility of the Greeks.
It would not have been possible to accumulate such debt without the eager willingness of creditors, none of whom were forced to lend to Greece. Nor would it have been possible without the end of exchange rate risk, which was thought to have minimised the risk to lenders, nor indeed would it have been possible without an interest rate, managed by the ECB, which was held at an entirely inadequate level to deal with Greek inflation.
By joining the Euro, Greece handed over control of the two main levers of monetary policy to the ECB, namely interest rates and exchange rate policy. Both of these are vital tools in controlling inflation, and without them a country with higher inflation than others ends up with external deficits that can only be dealt with through external financing. If this pattern is repeated – as was the case in Greece, Spain, and some other Eurozone countries – then a colossal debt builds up.
Attempting to offset this debt through austerity measures such as cutting wages and social protection has led to a spiral of recession, unemployment and poverty. The result has actually been to increase the initial debt, in countries who were not solely to blame for their predicament. The only glimmer of light in all of this was the fall in imports and increase in exports, which at least allowed an end to the foreign trade deficit.
But this small step forward is now put at risk by the measures taken by the Greek government to increase the minimum wage and reinstate public sector workers. It’s not simply a question of how to pay for it, which could be done by reducing the debt burden, rather it’s a question of how to avoid an increase in imports which will reinflate the external deficit and actually lead to a renewed increase in the debt that Greece is struggling to reduce.
This reality makes it impossible for debtor countries in the Eurozone to solve their debt problems by themselves, without action at EU level. It also makes it impossible for one single country to reverse austerity all by itself.
Greece cannot repay its debt, and that’s why they need EU intervention. By the same measure, Greece by itself cannot commit to increased expenditure without new external financing. Going it alone may well lead to bankruptcy and exiting the Euro, and who knows which of Greece or the EU would end up as the biggest loser in the end!
Europe must not abandon Greece in its hour of need.
Greece is an opportunity for Europe to solve the peripheral debt problem, whilst rejecting the austerity that has deepened it. There is no need to agree to every demand from Syriza, but we can and should deal with their main demands at European level, whilst going even further and convening a conference of debtor countries. Let us then link debt repayment with growth, and create a public investment programme worthy of the name that will grow the economy. Let us fund Europe adequately to provide this investment through a fair taxation of capital across Europe.
The most effective way of ridding our continent of poverty and unemployment, is by ending the vicious spiral of debt that feeds this nightmare. This is Europe’s duty and obligation.