Greeks are going to polls on 25 January amid anxiety about the country’s future.
Greece’s woes have been troubling the eurozone economy for years now, although it only accounts for 2.5 per cent of the bloc’s GDP, and about the same percentage as the eurozone’s public debt.
The reason is simple. The structural problems of Greece are similar to those of other souther European countries like Italy, Spain and Portugal.
Their debt started growing disproportionally when they adopted the euro, an industrial currency with low interest rates that is rigid and largely unfitting to southern Europe’s uncompetitive economy.
Although Greece received the biggest loan in history, there is no International Monetary Fund (IMF) big enough to rescue Italy and its €2.5 trillion (US$2.9 trillion) debt.
Approximately €240 billion (US$280 billion) was (and is still being) lent to Greece by the IMF/European Central Bank (ECB)/European Commission(EC) troika to pay off interest rates and keep the state running.
The loans came with strings attached. Greece had to cut down on welfare, pensions, wages and what was portrayed as a monstrously large public sector, which, in actual fact, was no bigger than that of other EU member states.
It all came with dire political, social and economic consequences for the Greeks.
The rise of xenophobic and fascist groups is a direct product of the austerity policies.
Peaceful demonstrations were met with police brutality not seen since the dictatorship ended in 1974.
As labour standards retreated, unemployment exploded and the rich transferred their capital abroad, more and more people perceived a growing injustice.
The recipe largely failed. Although some of the debt was written-off, the debt/GDP ratio is now higher than it was in the beginning of the crisis.
Not because the debt increased, but because the GDP decreased drastically. Harsh austerity measures caused the GDP to drop from US$321 billion in 2009 to US$241 billion in 2014.
Back in 2012 a ‘terror campaign’ conducted by Greek media about a ‘Grexit’, empty ATMs, and inability to import food blurred the overall picture.
A frightened Greek people voted for a government that would impose austerity, make reforms and, in their words, “keep the country safely in the eurozone”.
At the time, the party which will most probably take the majority of votes in this election, Syriza, correctly claimed that Greece held a “nuclear bomb” in its hands: an uncontrolled default on its debt could cause panic in the financial markets and a massive withdrawal from the bond markets of the European peripheral countries.
This time, European leaders claim to be better equipped to face a credit event in Greece. But they cannot be sure.
In light of Podemos’ rise in Spain, Europe’s policy-makers are starting to grasp the real dimension of the problem. Old school “business as usual” solutions are losing political support by the day.
In Greece, a renewed effort to initiate a pre-election ‘terror campaign’ quickly failed.
Eminent economists from around the world are helping underline the obvious: the Greek debt is unsustainable, both economically and politically.
It is high time for European leaders to demonstrate their determination in solving the European debt crisis for good and prove that, when needed, Europe can act as one: that Europe is to be taken seriously.
A debt restructuring and a European New Deal, as proposed by Alexis Tsipras, the leader of Syriza, could create millions of new jobs and improve livelihoods.
Such a result would certainly renew enthusiasm for more integration while keeping extreme-right parties at bay.
