After the victory of Syriza, an extreme-left party, at the last Greek elections, all the observers are analysing the situation with a view that Greece at some moment will have to take into account the hard reality and follow the instructions of the troika composed of the European Central Bank (ECB) , the European Commission (EC) and the International Monetary Fund (IMF), supported by Germany, going back into the austerity they have promised to abandon during the campaign.
What is not understood in the rest of Europe is that Syriza has not a lot of choices: they came into power by promising to end the austerity and push away the troika, and they clearly do not want to change this. They are ready to discuss, but they will not back off, especially when now 70 % of the population is supporting them.
A dangerous bluff on the two sides
In fact, in the present situation, the two groups, Greece on one side, and what I would call the Germany group on the other side, are all bluffing, as all of them have something to lose in the confrontation. But they also know that the first one who is going to surrender is going to lose a lot. On the German side, Angela Merkel knows that any renegotiation with Greece will be the first step towards the abandon of the German austerity in Europe, and that it will cost her a lot internally, in addition to her present position as the European leadership. On the Greek side, it is probable that the government would have to resign rapidly, with the necessity of general elections in the following months.
At this game, everyone does whatever it takes to oblige the other one to bend. On the German side, the stiff declarations of Angela Merkel do not let any negotiation margins. In addition, the recent decision of the European Central Bank on the 4th of February to suspend the exception which it had conceded Greece, of temporarily accepting Greek state bonds as collateral for loans to Greek banks. means that in case of difficulties, the Greek banks may have to close their operations, and we are near this situation (deadline on the 28th of February). The big question is: who is going to lose the most, if the game continues until its natural end, which seems probable?
Greece now has no more choices
Here is the problem, for us EU citizens in the Euro zone: we are going to lose our money, because if things go to their natural conclusion, the Greek banks are going to be unable at the end of February to face their obligations, as the decision of the ECB has already begun to create ta panic: people want to withdraw as much as they can of their money, and there is no possibility for the banks to cover these needs.
The Greek government will then be obliged to act rapidly to avoid more panic and lose totally the control of its money, by momentary closing the banks and limiting the amounts that the population may withdraw. But past the few first days, the government would have only one solution: requisition the Greek Central Bank in order to constrain it to furnish the Greek banks in euros, which would be a violation of the treaties creating the Euro zone. The Greek Central bank, like other Central banks in the Euro zone, being simply a relay of the European central Bank, it would mean that the ECB would have to choose between accepting the fact (which is not probable, because it would be an unacceptable precedent for a number of member states), or refuse the Greek euros in the Euro zone, which has already happened some years ago in Cyprus. If Greece refuse to comply, it would be de facto excluding Greece from the Euro zone, which is the end of the repayment of the debt.
For the Greeks, the consequences will not be too dramatic, as their budget is now balanced before payment of their debt, which is quite different from the dramatic situation some years ago. They would stop paying the debts, and would have to develop their internal production to improve slightly their trade balance, which is now slightly in deficit.
On our side, it would mean that we are going to lose all the money which has been lent to Greece by our governments.
Is it the most probable scenario? The recent decision of the ECB to put pressure on Greece with some kind of ultimatum which is obliging the Greek government to do something before the 1st of March makes me think that it will be the case. There will certainly be an attempt by French President Francois Hollande to reconcile the different positions, as he dreams to be a link between Northern Europe and Southern Europe, but it will probably fail because Germany or Greece have too much to lose if they let go of their antagonist positions.
We may lose more than the Greek debt
If the events go on as in other countries who have stopped paying their debts (Argentina, Iceland,…), we will in some years renegotiate with Greece in order to save part of our money (let us bet 30 %) and allow them to come back on the international markets. In the meantime, holidays in Greece will be cheap, as the drachma will go down in front of the Euro.
We will lose the money lent to Greece, but what is also worrying is that we may lose the Euro, as the Greek example may give some ideas to other countries in difficulty. And when it comes to Italy, Spain, Portugal, France, Ireland or even Austria, a Greek success story would facilitate the election of governments wanting to get rid of what some people call the German Euro, as, contrary to Finland, Sweden, France, UK, Italy and others, Germany has always fought against the devaluation of its money, enduring the hard consequences.
What may let a bitter taste in our mouth is the fact that some years ago, our governments and the famous troika have accepted to lend more than 300 billion euros to Greece, when it was quite evident that it would be difficult for the Greeks to reimburse more than their annual GNP (now the debt is 170 % of the GNP, which no country could pay back anyway).
More generally, economists have warned since the beginning that a Euro zone without an alignment of the economic policies between countries, and without the rich countries accepting to finance the development of the poor ones, as it functions in a country where the global budget allows for such transfers. It would be useful to rethink it…