Greece and the Price of Distrust

by George Hatjoullis

Conspiracy theories are multiplying around the Greece crisis. It is a plot to bring in a compliant Greek government. It is all being contrived with an eye to anti-austerity movements across Europe. My own view is a little simpler. It is the victory of fiscal orthodoxy as the guiding philosophy of fiscal policy in the eurozone (and indeed globally) and a lack of trust of Greece. It is this lack of trust that is driving the position of the institutions vis-a-vis Greece and resulting in inappropriate policy measures being imposed.

Greece has actually signed up to fiscal orthodoxy. It is embedded in the so-called fiscal compact (see previous blog). The problem is to fully implement from this starting position, at the pace demanded by the institutions, is too much for Greece. The effort has already created levels of poverty and deprivation that ought not exist in a eurozone state. To do more would risk social disorder and threaten Greece’s fragile democracy. The Greek people need some relief not more pain. This must be obvious to the institutions yet they seem unmoved. Hence, the conspiracy theories. However, the source of this hard attitude is simply distrust. The Greeks are paying the price of distrust.

It does not matter now why such distrust has occurred. The fact is it exists and it is overwhelming any compassion and understanding the European family might normally have felt for Greece. It is driving the refusal to consider debt relief. It is behind the insistence on pension reform at a pace that will bring hardship to many extended families that are already in poverty. The reason is distrust. If Greece is allowed time and relief, the institutions fear it will simply not reform. Yet to press Greece into such a socially oppressive reform timetable risks forcing Greece into default and all the horrors that could follow and not only for Greece. The distrust is affecting judgement and this leads to bad policy.

For its part, Greece has done nothing to dispel this distrust. Syriza has come into power on a conflict platform to challenge the Institutions. It has focused on the starting position of Greece and the impossibility of proceeding with the bail-out programme. It has used conflict language right from the start. It has implied conspiracies. It has appealed to ideas of fairness and justice and even brought up loans to Germany and the Nazi occupation of Greece. Anyone with an insight into the Greek psyche can see why they have taken this approach and even sympathise. However, this approach did not build trust. It deepened the distrust. It gave the impression of a party determined to avoid its own country’s past failings and blame everyone but itself for its predicament. It gave the impression of a party, and people who elected it, not yet willing to face up to the demands of eurozone membership. It gave the impression of a party, and people who elected it, that still could not be trusted. Greece is now paying the price of the distrust that it has allowed to fester and grow.

So is there hope? There is always hope but not much. The situation is now binary. Tsipras can default or capitulate. If he defaults he opens up Pandora’s Box of eurozone demons which may engulf everybody. If he capitulates he still risks social disorder in Greece and certainly political instability. There is no happy outcome now just more pain.