The spectre of a Greek exit from the Eurozone has once again been raised by the political crisis in Athens: a scenario that is all the more dangerous for Spain, which is now more vulnerable, and one whose consequences would be geo-political as well as economic.
Turning the tables on the decades in which it was largely ignored, the blaze of attention on Europe is set to continue. Only a few days after the faint glimmer of hope accorded by the François Hollande’s victory in France, we are once again forced to contend with two major problems underpinning the crisis.
On the one hand, we have fragile political systems, characterised by a relentless drive – as we have seen in Greece – to impose austerity and to force citizens to assume all the responsibility for the crisis, which are embarked on a course towards self-destruction. On the other, as is evident in the Spanish situation, we have to contend with the fragility of certain branches of the financial system, which has resulted from a decade of excessive liquidity, poor management and even more inept supervision.
A chain reaction
Having remarked on these two major weaknesses, and the manner in which they exacerbate each other, it is clear that the current situation will be short-lived. In Greece, the prospect of a renegotiation of the bailout implies the possibility of the country’s exit from the Eurozone. In Spain, if the reforms and budget cuts, which currently constitute the sole strategy of the government, are to deliver results, these measures will have to be implemented in a context of financial stability and external confidence.
To keep Greece in the Eurozone, and to avoid a chain reaction prompted by an exit from the euro which would severely affect Spain, the governments of the Eurozone will have to implement radical measures to show the markets that Greece has a future in the Eurozone, or at least demonstrate that its departure would be an isolated incident. However, given that European leaders have yet to establish the necessary firewalls, the markets are unlikely to be convinced by promises. At this pessimistic and worrying juncture, many in European institutions are increasingly convinced that neither Greece or Germany can make any further efforts: the Greeks are simply too weary of austerity while the Germans have been worn out by solidarity.
It is time to take a deep breath and a step back: a Greek exit from the Eurozone would be a large scale disaster both for the Greeks and other countries in the single currency. Living conditions for the Greek population would certainly deteriorate, while the country’s extremist parties would become even more powerful. And whereas Greece would officially remain a member of the European Union, an exit would have an impact on all of the policies that relate to the EU. In particular with regard to the single market, giving up the euro would be akin to leaving the EU.
The risk of de-Europeanisation
There would also be geopolitical consequences: at at time when the EU was hoping to absorb the historically troubled Balkan peninsula into its western heartland – Croatia is set to join the EU in 2013 – a Greek exit from the Eurozone would open a new front for disorder and failed statehood. At the same time, the Greek population would consider the European project to be a failure, and on that basis seek to establish a greater distance from Europe. The consequent de-Europeanisation of Greece would likely favour anti-western voices and political forces which have always been stronger in the country than they have been in such countries as Spain, Italy and Portugal – and this development could have major repercussions in the field of security, notably because it would undermine NATO and at the same time pave the way for an upsurge in nationalism and increased tension with Turkey and Macedonia.
For the rest of Europe, the circumstances arising from a Greek exit would certainly be distressing. On close inspection, the fashionable euphemism of a “controlled exit” is also the expression of a cynical hope that only Greeks would be affected. However, the fact is that the move would come at a time when Portugal, Italy and Spain are in an extremely vulnerable situation: their economies have already been ravaged by budget cuts, while accompanying reforms have yet to bear fruit, and measures to relaunch growth have yet to feature on the agenda. In other words, it is hard to imagine a worse moment for a Greek exit from the euro, and in particular with regard to its potential for contagion.
The European Commission has yet to exhaust all of its resources, and it is preparing to wheel out a battery of measures to stimulate the minimum of growth necessary to sustain hope: in particular measures relating to the use of structural funds, ECB loans and a degree of flexibility in deficit reduction targets. But in spite of the optimism prompted by Hollande’s presidential victory, which has completely transformed the atmosphere in Brussels, Greece’s situation is still fraught with the terrible doubt that the French socialist has arrived too late to make any difference.