Endless talks and an exhausting game of words are about to reach an end as Monday’s Eurogroup meeting is in sight and Greek and European negotiators will have to submit a proposal to address the issue of the country’s gigantic debt. Although the discussion will be opened to all members of the monetary union, the real match will be between the Germans and the Greeks, with the latter having pledged to do “whatever it takes” to secure a deal. However, the distance between the two sides seems still unbridgeable unless someone else will step in to force Germany to compromise and loosen a bit its strict demands. Therefore, Italy or France could be the decisive players in this interminable confrontation. To shed light over what could be the outcome on Monday, GRI has interviewed Georgios Karyotis, Secretary of the Greek Politics Specialist Group, Senior Lecturer at University of Glasgow and co-author of The Politics of Extreme Austerity – Greece in the Eurozone Crisis.
Q: Will the new government be able to reach a new deal with the Eurozone? Will Mr. Varoufakis be able to renegotiate the terms of the country’s debt with creditors?
A: A new deal between Greece and the eurozone will likely be reached on Monday’s Eurogroup meeting. Such an outcome is nearly inevitable, as failure to reach an agreement would be catastrophic for Greece and exceptionally dangerous for the rest of the Eurozone. For Greece, failure in the negotiations would signal towards an imminent forced exit from the Eurozone, a re-introduction of its own currency, significantly devalued compared to the euro and a bank run which could break the domestic banking system. For Europe, a Grexit would shutter confidence on the Eurozone, would encourage market speculators to target other “rehabilitated” but still vulnerable economies, such as Portugal, Ireland, Spain and Italy, and would fuel political support for anti-EU parties, such as UKIP in the UK. Contagion, both economic and political, is unpredictable and Eurozone leaders, although better prepared now to manage a Grexit compared to 2010 or 2012, would still not want to take that risk which could open a Pandora’s box.
Q: Which potential allies do you currently see in Tsipras’ hunt for support against German demands? Could Renzi’s government be one of them (or Spain after a possible Podemos victory)?
A: Syriza might have expected to find some support in other Southern countries hit by the crisis. When it comes to Portugal and Spain, the opposite has been the case so far. The ability of Syriza to negotiate a rolling back of austerity in Greece would boost support for other anti-austerity parties, such as Podemos in Spain and new coalitions emerging in Portugal. This would not be welcomed by the current leaders of these countries. Renzi on the other hand, Italy’s PM and de facto leader of the socialists in Europe, is closer both ideologically and in his opposition to austerity to the views of the Greek PM Alexis Tsipras. Other pockets of support for Greece could be found in France but also in the US, with some messages, albeit mixed, coming from President Obama and senior officials, to resolve the crisis and roll back the pressure on the weaker European economies.
Q: To what extent has the ECB’s QE programme and the €5bn emergency loan extension helped Greece? What else could the ECB do?
A: The ECB has effectively signaled that it will not stand on the way of a deal in the negotiations. The message is that the solution is not about funds, these can be found, but about political will. The political negotiations can resolve the crisis and the key for that will not be what the ECB does, but how both sides will be able to “sell” the deal I expect will be signed on Monday as a success to their respective audiences.
Q: Would it be fair to say that what Greece needs isn’t another IMF austerity driven bailout program? Which in your view are the most pressing issues to be addressed?
A: Resolving the crisis in Greece requires a combination of things. It demands a tightening of budget and structural reforms, some of which are included in the signed bailout agreements but are facing implementation obstacles. These measures should not be punitive, as it has been the case according to Syriza, and should not disproportionately affect the weaker sectors in society, the unemployed, the poor, the pensioners. Preventing a deterioration of living conditions for significant segments within society should be part of the new programme. Simultaneously, an excessive focus on austerity cannot help the economy restart and become competitive. For this, austerity measures need to be balanced out with initiatives to encourage growth, investment and re-employment of the workforce.
Q: Would a Greek exit trigger a domino effect in the rest of the Eurozone?
A: Very possibly but we would need a crystal ball to know what might happen and when, as noted above. I expect this will remain a hypothetical question and it will not need to be tested empirically after the agreement that will likely be reached on Monday.
Georgios Karyotis is Secretary of the Greek Politics Specialist Group, Senior Lecturer at University of Glasgow and co-author of The Politics of Extreme Austerity – Greece in the Eurozone Crisis.
