Greece: stay in the game

by George Hatjoullis

There is no question that Greece should not have joined the eurozone when it did. However, this does not mean that the best option is now to leave. There is no doubt it could leave and stay in the EU. Although the Treaty of Nice makes no provision for such an eventuality, it could be achieved if both parties wished it. The question is will Greece benefit more from leaving (lose less) than from staying in? This question can never be resolved but on balance it would be best for Greece to stay in the game (in my view). The eurozone has little to lose from Greece leaving. It is true that the irrevocable nature of union takes a bit of a hit but this can be overcome. Greece can be’ the exception that proves the rule’ and this is how it will be spun if Greece leaves. Indeed, it may make it easier to put in place the federal structures that would stabilise the union. Greece, and the UK, are two significant obstacles to such structures, albeit for quite different reasons. The problem is that Syriza has proceeded on the assumption that, ultimately, the rest of the eurozone gives a damn. Some do but importantly, the Germans do not.

This was made abundantly clear to me by Germans close to Merkel during 2010-2012, when my employer asked me to look into the Greek aspect of the eurozone crisis. Events have consistently confirmed what was communicated to me. Germany will make life as difficult as possible for Greece and will be quite happy to see them withdraw from the eurozone. I was later to discover that they felt the same about Greek-Cypriots because of the perceived Russia links. Of course, these are just my impressions but I gather similar sentiments are reported in Geithner’s memoirs, certainly on Greece.

The bailout deals offered to the Greeks were doomed. It is unclear whether the IMF realised this or not. It was obvious to me so I assumed the IMF must have known. Greece needed immediate debt relief and dramatic legal and administrative reform. It did not need austerity. However, as this was the medicine being dished out to everyone else they could hardly avoid some austerity. Synchronised austerity was an obvious disaster for eurozone growth but it still went ahead. The weakest, Greece, was bound to suffer the most and it did. It has suffered a 25% drop in GDP and still seen debt to GDP in the 175% region and rising. No one honestly could have expected anything else. The situation today is more austerity and reform or repudiation and all that this entails. Not a great choice.

Repudiation appeals to many Greeks. It is the rebels blowing up the arsenal in the Arcadia monastery all over again. Freedom or death I hear them cry. There is a time and place for such emotions but this is not one of them. Greece will separate from the eurozone and perhaps the EU in this scenario of unilateral repudiation. This is a dangerous time to separate and not just for economic reasons. It will also shaft Cyprus in the process. Cyprus has remained resolutely loyal to Greece despite having reaped nothing but misery from this loyalty. Cyprus may be on the verge of a breakthrough in the Gordian knot known as the Cyprus Problem. An ostracised Greece may jeopardise this. Why should Greece care about Cyprus? Let me remind all Greeks that their treasured democracy was only returned to them with the sacrifice of Cyprus. It was the catalyst that brought down the Junta. You owe Cyprus big.

You also owe yourselves a future. The eurozone offers a future provided Greece can change. The eurozone would prefer Greece to stay in, if it can change. It would prefer not to have to deal with repudiation. If the price is not too high it will deal. There is an outcome that will serve all if the emotions can be suppressed and indeed Syriza has played its part in waking the eurozone up to possibilities. This is what I mean by Syriza as catalyst. I would not dream of offering Greeks advice on how to vote. I know how things are and my wife has been busy organising charity for Greeks through the church. However Greeks vote, the short-term offers only pain. The question is does offer hope with the pain.

The referendum is a vote of confidence in Syriza as negotiator. A yes vote is a clear signal that its approach has not worked and the people want to try another tack. It is complicated by the fact that Germany will not deal with Syriza. This is unreasonable but a fact. If Greece votes yes Syriza must step down. This does not mean handing over to Samaras. He has hardly covered himself in glory! The best option is a technocrat government as we saw in Italy. It would be unelected and consist of a team to negotiate a deal for Greece. It would need to command the respect of both parties. It would need to consider not only reform ( and I mean reform, not austerity) but also debt sustainability. It would also need to be sensitive to the already dire conditions for Greeks at the moment. If trusted by both sides it could come up with goods. It would then resign and hold elections.

A no vote hands negotiation back to Syriza and encourages them to continue on the path they have chosen. If that is the choice of the Greek people so be it. I wish you luck but please do not drag Cyprus down with you! This island has suffered enough.