In the first of a two-part instalment, this article will discuss the benefits of Greece leaving the EU.
A quick assessment of the relationship between Alexis Tsipras and Angela Merkel will tell you that their relationship won’t reach Danny Zuko – Sandy Ollson levels of happiness. Rather, with Greece’s deteriorating financial situation testing the resolve of Merkel and Co, the proposed ‘Grexit’ might represent the only way the EU’s future doesn’t reflect the narrative of a Greek tragedy.
The situation Greece finds itself in seems borderline incurable. With unemployment over 25%, a debt-to-GDP ratio of 200% and deflation at 2.6%, the moussaka-loving nation’s economy has shrunk by 23% since 2008. Here’s some food for thought: you’re only as good as your weakest link. As Robin van Persie showed at Arsenal, there’s only so long you can carry your teammates before getting fed up – keeping Greece in the EU might cripple the Eurozone.
Many are clamouring for Greece to leave the euro, default on its debts and move on. Whilst this would cause significant short-term hardship for the Greek people, it represents a practical way out. No pain, no gain. The recent election of Prime Minister Tsipras heralded a new era of Greek politics. Leading a radical left-wing coalition, his party, Syriza, are serious about change; they are fighting for Greek debts to be written off by the ECB, a move strongly opposed by Germany and Jean-Claude Juncker, President of the European Commission.
As the saying goes, there’s no smoke without fire. Many are opposed to allowing Greece to dictate terms, not least because official bodies or governments own approximately 77% of Greek government debt. What’s worse is that Tsipras doesn’t want to privatise state assets to raise capital – a decision that even the reem Joey Essex would be baffled by (if he followed the news). Whilst a Greek default might therefore not affect private institutions, it would be catastrophic for nationalised institutions.
One of the biggest blunders by the Troika – the EU, ECB and IMF – was to assume that structural reforms and big bailouts in 2010 and 2011 would remedy the situation and generate growth in the face of deflation. Let’s not beat about the bush: those reforms had some positive implications, particularly with regard to employment but spending cuts were always going to be necessary given Greece’s debt burden.
Whereas countries like Britain and America can increase growth by easing monetary policy in proportion to the spending cuts that they implement, Greece’s actions are much more restricted. By virtue of the fact that Greece uses the euro, they have no control over their monetary policy. The implication of this is that they can’t offset their cuts, so its austerity programme has hit the economy with heavy deflation. In other words, Greece can look forward to more unemployment and a larger relative debt burden. Uh oh.
Unfortunately for Greece, if Mr Tsipras continues to display such a brand of delusional politics, he may single-handedly push the EU to the end of its tether. Should Greece’s plight continue, the EU would be faced with the unenviable task of parting ways with Greece.
By Kamran Khan