Alexis Tsipras pledged to end austerity. And now he is asked to sign up for more
It comes down to this: Greece has until Wednesday to pass into law draconian new austerity measures or leave the single currency. Months of fruitless talks, all the midnight oil burned in the seemingly , have ended with a simple message to Alexis Tsipras and his leftwing government: stay on our terms or walk. You decide.
It’s a terrible choice for Tsipras. The conditions being attached to a third Greek bailout are beyond harsh. There will have to be tax increases, pension reforms, privatisation and spending cuts , all overseen by the troika of the European Central Bank, the European commission and the International Monetary Fund.
Tsipras came into power . Instead, he is being asked to sign up to an intensification of fiscal pain. Another €13bn (£9bn) will be sucked out of an economy that is already in a slump. The centre-right and centre-left governments that have run Greece since the crisis began at the end of 2009 have been asked to swallow a lot, but never as much as this. If he submits, Tsipras will be living proof of the line with which : meet the new boss, same as the old boss.
The alternative, though, is to see his country descend into chaos. No preparations have been made for exit from the euro and it will take months for an alternative currency to be in circulation. And with the banks days away from collapse, that is time doesn’t have.
So, while there’s a strong argument for saying Greece would be better off outside the euro, because it could then devalue and default on its debts, this fails to take into account the profound practical difficulties of doing so. The template for such a strategy is Argentina in 2001-02, but it is . Argentina was never in a currency union and did not need to print a new currency when it abandoned the peg with the dollar.
Greece might yet decide the price of a new bailout is too high. This, after all, is a proud nation that may take umbrage at being accorded what smacks of semi-colonial status within the eurozone. The U-turns executed by Tsipras in the week since the referendum that rejected (less onerous) bailout terms suggest he will now do what he is told.
Some members of the eurozone have ceased to care whether he does or not. The events of the weekend have demonstrated the deep splits in the single currency bloc. , Finland, Slovakia and the other hardline countries of northern Europe have made it clear that they no longer trust Greece to make good on its promises, and have lost patience with Tsipras. Faced with their own domestic political pressures, they want to keep the euro intact but not at any price.
One theory is that Germany has made the conditions for staying so severe that Greece will leave the euro of its own accord. The idea that Athens would have to hand over €50bn of assets to the eurozone that would be sold off over time supports this notion.
France and Italy, meanwhile, have been more supportive of Greece. They want Tsipras to be cut a little slack; they see that ramping up austerity will do more harm than good; they see the dangers of the single currency starting to crumble at the edges. But, while François Hollande and Matteo Renzi may keep Greece in the euro, it will be at a heavy price.
The first victim will obviously be Greece. Paul Krugman, the US economist, has shown there is a , with Greece suffering both the biggest drop in output and the largest amount of budget tightening. For some reason, the troika seems to imagine it will be different this time.
The second victim is the single currency. Ever since it was founded at the end of the 1990s, monetary union has had to grapple with two design flaws: a one-size-fits-all monetary policy and the lack of a common budget. Countries such as Greece ceded control over their interest rates and their exchange rate to the , but remained in charge of public spending and taxes.
Germany was never happy about that state of affairs. For years, there has been talk of moving towards closer fiscal union, with a mechanism for moving resources from rich to poor parts of the single currency in return for the willingness of individual governments to accept rules that would enforce budget discipline. The plan for Greece amounts to imposing centralised control under duress: accept the need to run permanent budget surpluses, change labour laws and hike VAT – or leave the euro for five years. From now on, the Greek budget will have to be approved in Berlin.
The third victim is Europe itself. When the single currency was conceived, it was as the highest expression of noble ideals: commonality, mutuality and inclusive growth. Any suggestion that provides an alternative to the nastiness of Anglo-Saxon capitalism has disappeared during the Greek crisis, which has now entered a dangerous new phase. A country that has seen its economy shrink by 25% has been condemned to shrink some more. A humanitarian crisis looms. The Germans and the French are at loggerheads. It is a complete car crash.