Dimitris Rapidis

The pressure on the new Greek government is immense since the first day in power. A growing pressure that stems from every possibly side: from international media; from EU leaders; from opinion-makers; from the market; domestically in Greece, from different voices proclaiming themselves “democrats” that vie for the future of Greece, its citizens, its prosperity, the youth. We can hardly discern those criticizing the structure of the bailout programs in Greece, the shared responsibility of the Greek and European decision-makers, the lack of productive reforms, the incapacity of the political personnel in Greece that managed to bring the country in such a desperate position. In other words, the question is not whether Greece will stay or leave Eurozone; is whether Greece as sovereign state has the right to take a rational decision.

First: The ECB

The major credit rating services are one step before downgrading Greece’s credit rating. Such a development would decrease credibility on national economy and deepen fears for major economic crunch in Greece and Eurozone. But this does not go alone. It would additionally affect ECB’s credibility in the markets and would destroy quantitative easing (QE) policy prospects. This is something Draghi would not like to see for the sake of his own political prestige, leadership, and ambition. Furthermore, he would not like to see his name as the destructive decision-maker of Eurozone and the one who opened the Pandora’s Box for unexpected developments in the monetary union.

Second: Chancellor Merkel

Chancellor Merkel is undoubtedly a prominent and powerful political figure in the EU and Eurozone. She achieved to grow Germany economically and politically, increasing the leverage of the country and establishing it as the major power in Europe. In the case of Greece, two groups of analysts have been formed: the one sees Greece as the scapegoat that will be pushed to exit Eurozone, thus giving the example of the “bad student” that failed to pass the exams and now has to repeat the class. The other group sees Greece as the first Eurozone member-state that did not achieve to ameliorate its economy, stabilize it, and therefore achieve to overcome recession and economic disaster. For this group of analysts, the exit of Greece would establish a legal and factual precedent for Eurozone and facilitate a domino effect for other member-states to leave Eurozone. Both scenarios would not be of Germany’s benefit, the founding initiator of the single monetary union and the leading member-state that was so vigorously positioned for austerity politics since the beginning of the economic crisis. In this respect, Chancellor Merkel would lose its power domestically, as public grievances over debt repayment would go high, whereas in European level criticism against austerity would grow further, damaging the sound profile of Germany in the global markets.

Third: President of the European Commission Jean-Claude Junker

President Junker’s first priority is a stimulus plan for Eurozone that would unlock the productive potential of the member-states and assist in combating youth unemployment. This priority is aligned with the pressure of the Greek government to insert a growth clause in the promise to pay back a considerable part of the national debt. As Junker’s plan has been pushed further, and with the discussion over the negotations of Greece’s debt to come again vividly in the table, stalemate would grow. With only a semester in Eurozone’s leadership, Junker seems to be silent on that matter, trying to balance between the different strategies of Greece and Germany. But the time he needs to step in and voice out his concerns and plans is about to begin. Otherwise, criticism on his leadership and efficiency would inevitably start growing.

Fourth: The member-states of Eurozone and the US

So far we have not heard the voice of other Eurozone member-states on the Greek case. Only sporadic statements, lost in the hassle of tremendous developments. We need to underline that Eurozone is not only Germany, but also 18 other member-states that have invested in the stability of the single market and the safety net it provides against global economic turmoils. What we have experienced with the depreciation of the ruble in Russia and the franc in Switzerland, could not be a science fiction scenario for Eurozone. As EU citizens, we still feel secure under the common umbrella of the monetary union, yet it is vital to acknowledge that nothing should be taken for granted.

From an merely economic perspective, Greece’s public debt is 323 billion euro, counting for 175% of the GDP – the highest in Eurozone. If Greece defaults, every member-state will loose as the debt would not be possible to be paid back. That would be an economic disaster for the smaller member-states, like Slovakia, Ireland, Austria or the Netherlands, but also a major loss for bigger creditors like Germany, France, Italy, Spain, and also the IMF (i.e. mainly US).

So, what to do next?

Greece’s creditors need to renegotiate a new package with the Greek government. This package should be built on three pillars: first, to include a growth clause in debt repayments; second, to accompany this clause with a significant haircut or debt relief so that debt can be viable and affordable by the Greek economy; third, to freeze any repayment of debt for a significant period of time, as long as Greece is committed to increase growth rates and revitalize its economy.

And coming now to the crucial question: How Greek growth can be reached? With what money?

1. from Junker’s stimulus plan;

2. from ECB’s quantitative easing;

3. From the safety net that Eurozone leaders have to provide to Greece against the credit crunch of the Greek market.

Therefore, we come again to the departing point: The proposals of the Greek government have to be endorsed by Eurozone, acknowledging that would bring a win-win situation. Political and economic solidarity is the only way to redirect European economy back into safe waters. And this is rational decision for Greece and Eurozone.

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