Global Watch

Grexit: more than Greece and Europe at stake

European dream in ruins?
European ruins.jpg

The dream of a united Europe, like the mythical city of Atlantis, is fast disappearing among the Greek islands – and Greece might not be the biggest loser.

At the time of writing the results of the referendum in Greece over how the country’s debt-crisis should be handled is not yet known. But whatever the outcome, the crisis has exposed serious weaknesses in the present European construct that will not be overcome easily.

The implications and impact of what is happening with Greece go far beyond its own borders or even that of the politico-economic 28-nation European Union (EU) or the 19-member eurozone currency union.

On the global economic and especially the international financial front, this fact was clearly illustrated last week when Asian shares slipped to five-month lows and so-called safe-haven assets attracted investors as yet another ‘crisis-deadline’ in Greece loomed.

On the global geopolitical front it is also playing into the trend over the last few years towards a multi-polar world as the absolute dominance of the American dollar has come under threat and Cold War-like geopolitics reappear. Some observers already express fears that the Greek situation is spiralling into a potential geopolitical threat.

Fact is, if Greece leaves the eurozone and moves back to its own drachma it would probably, to survive the resultant financial/economic storm, have to resort to currency controls and trade regulations as well as to initiatives to boost the little export potential it has.

In the process it is likely to turn its eyes towards alternative potential trading partners like Russia and the Brics group of countries that include China and South Africa and the nearby Middle East. This could and likely would impact considerably on how Greece perceives its own national interest in geopolitical terms.

Can the EU survive?

The major danger for Europe, and its leading nation, Germany, is probably best summarised by George Friedman in an article for Stratfor Global Intelligence’s Geopolitical Weekly under the heading “Beyond the Greek Impasse”.

Friedman writes: “Many have made a claim that a Greek exit could lead the euro to collapse. This claim seems baffling at first. After all, Greece is a small country, and there is no reason why its actions would have such far-reaching effects on the shared currency.

“But then we remember Germany's primordial fear: that Greece could set a precedent for the rest of Europe. This would be impossible if the rest of Europe was doing well, but it is not.”

Greece is by far not the only member of the EU that is in deep economic trouble in the wake of the financial crisis of 2007/2008.  Spain is under considerable strain economically and socio-politically, with very high unemployment figures to start with. So are Italy and Ireland.

At the heart of Europe’s troubles, as national populist parties are on the rise, is that the ‘project’ to unify Europe never succeeded or even really tried to get rid of the concept of competing nationalities. While it concentrated on economic integration, it created a collection of national winners and losers.

In the words of Dirk Kurbjuweit, writing for Der Spiegel: “Europe promised joint growth for everyone. Instead we have competition for prosperity. Many Germans don't want to have to sacrifice anything for Greece, whereas many Greeks expect Germans to make a contribution to ensure that what the Greeks are forced to give up doesn't become too harsh.

“Europe promised an end to nationalist thinking and even the end of the nation-state at some point in the future. In truth, the continent is going through a renationalisation. Few continue to believe in the greater good and the states have their eyes set on their own interests.”

Politically this also backfired as the political integration of the continent remained neglected and distance developed between populations as the running of the union’s affairs was left in the hands of technocrats sitting in Brussels.

In the words of Friedman: “The problem is simple. The core institutions of the European Union have functioned not as adjudicators but as collection agents, and the Greeks have learned how ruthless those agents can be when aided by collaborative governments like Cyprus.

“The rest of the Europeans have also realized as much, which is why Euroskeptic parties are on the rise across the union.”

The writing has been on the wall for some time. Two years ago, in June 2013, the public opinion service, Eurobarometer, reported that 60% of Europeans “tended not to trust the EU”. In comparison, in early 2007, before the onset of the global financial crisis, the level of distrust was at 32%.

It is against this background that Der Spiegel’s Kurbjuwiet wrote about the present Europe: “We are living in the anti-Europe.”

Messy business

Greece is not the first country to default on its debt. Argentina did so in 2001 and there are some lessons for all concerned to learn from that experience, although it is going to be more complicated for Greece.

Argentina’s Minister of the Economy at the time, Dominigo Vavallo, told the BBC in a recent interview that for many Argentines, the period following the default was ruinous: unemployment nearly doubled to more than 20% and inflation, which had been vanquished in the 1990s, came back into the economy with a vengeance.

In 2002 the country’s GDP dropped by 11% and poverty levels rose to above 50%. Pensioners, whose savings were denominated in dollars had it converted into pesos and many people could not pay bills, including mortgages, which were denominated in dollars.

The country’s saving grace was that it had a strong export sector, including a vibrant agricultural sector, which could take advantage of the devaluation of the pesos. It was also the time of strong growth in the Chinese market and it had access to an IMF loan.

A strong export base or manufacturing sector is, unfortunately, not a luxury at Greece’s disposal. Neither will international institutional credit be easy to come by. The only sector that might see an immediate improvement is the vibrant tourist industry, as the country becomes a cheap destination.

Tough times lie ahead for Greece. It will be hard-pressed to maintain social stability and there is likely to be an increase in emigration of especially skilled people.

But the tremors of the unfolding Greek collapse will be felt much wider, particularly in Europe, where Germany in particular will be challenged on a number of fronts to come to terms with the fallout.

by Piet Coetzer

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