I’m finally convinced – a Grexit really could happen
The prospect of Greece leaving the Eurozone never really seemed to be on the cards, even during the darkest days of 2011 and 2012. There were two reasons for this: firstly, the ease with which the country and its creditors could kick the can down the road. This was helped by the relatively small size of the Greek economy (it makes up roughly two per cent of the euro area’s GDP).
Secondly, the desperation on all sides to prevent one of the bloc’s long-standing members from crashing out. Economically, it may have made sense to default, leave, accept the massive currency depreciation and start again – but there was simply no political appetite for such an outcome.
These days, however, I’m not so sure. Something has changed. For a start, the tone of protracted negotiations between Syriza’s top dogs and their fellow European leaders. The sense of exasperation on both sides is palpable and shows little sign of improving. Alexis Tsipras’ optimism appears to be as forced as the awkward smiles on show during his latest meeting with Angela Merkel and Francois Hollande.
While certain European politicians have some sympathy for Syriza’s economic stance, overall there is a fundamental clash of ideas between Tsipras’ party and the protagonists who hold the purse strings.
Three or four years ago these cracks could be papered over, but an extended period of mass unemployment has created a schism that cannot be ignored. Will the gap be bridged, and a compromise found? I’m not convinced.
Finance minister Yanis Varoufakis – now sidelined from negotiations – used a visit to Germany this week to call on Merkel to produce a speech of hope. He’s right in one regard: hope is important. But the German leader’s rhetoric cannot pull Greece’s economy from the mire.
The tragedy of Greece’s current situation is that, while this saga drags on, it is suffering from the worst of both worlds. True – the country is being squeezed fiscally. But it is also restrained by its absurdly unreformed and statist economy. While so many in Athens refuse to accept the latter point, its fiscal situation cannot be ameliorated. And that’s to say nothing of the state of the banking sector.
The situation has not been helped by Syriza’s often bizarre approach to bailout talks – originally seen by some as clever game theory, but now widely met with incomprehension. See, to take just one example, the speed with which Tsipras’ relationship with Jean-Claude Juncker – the EU president – soured last week.
One minute Juncker, who clearly fancied himself as saviour of the crisis, was playing besties with the Greek PM. The next, he was publicly accusing his pal of failing to deliver a promised reform plan. A word of advice to Mr Tsipras: when you gain a key ally, try to keep them on side for at least a week.
Things could still go several ways. Can-kicking remains an option, via some kind of temporary deal. Or Greece may succeed in casting the IMF as the bad guys, and turn solely to its European neighbours to save the day. But a long-term deal requires genuine agreement over how to move forward; and if that can’t be found, the Greeks may just end up having to go it alone.