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Saturday, February 28, 2015

The Eurozone’s Greek Future

By Sam Vaknin
Author of “Malignant Self-love: Narcissism Revisited”

Q. Greece and the eurogroup made an agreement which allows the country to receive money for the next four months in exchange for reforms needed to straighten the Greek economy. The Western media announced that the only difference between the last and the new deal is that the name “troika” is replaced with “institutions”. Do you think that Tsipras will get along with the previous arrangements made by the troika and Samaras?

A. During the recent elections, Tsipras painted himself into a corner and made promises he can never hope to keep. In effect, he is now begging Europe to find a way to bail HIM out, to save HIS face, to square the circle: to allow him to continue to implement the old arrangements, including the austerity measures, but in a way that will APPEAR to be that he is not. Europe will offer him as many COSMETIC concessions as he needs: it will rename arrangements and credit facilities, reschedule some marginal debts, front-end (bring forward) the portion of the program dedicated to growth and employment, etc. But, the essence will remain exactly the same: very shortly, Tzipras will be forced to fire thousands of additional state workers, apply painful reforms to the banking and financial sectors, and cut further down on government spending. With or without the Eurozone, he has no choice: Greece is bankrupt (though less so than it had been 3 years ago.)

Q. How real Is the possibility of Greece leaving the eurozone and bringing back the drahma? What are the conseqences?

A. The possibility exists only if the Germans will act unilaterally and arrogantly (the kind of conduct they have been scrupulously avoiding since Tzipras came to power.) Exiting the Eurozone and the EU is a very unpopular idea in the Greek street and among Greek voters. It would be political suicide - as well as financial self-immolation. Greece needs all the credits it can get in order to merely survive. The minute it leaves the Eurozone, it will have to declare default on all its international debts and a moratorium on its domestic, internal debt. Its banks will collapse and have to be completely nationalized. Unemployment will soar as export finance will dry up. Countries like Thailand and Argentina went through a similar scenario and it took them more than a decade to just recover.

Q. Will Germany and EU alow this? What would this kind of step mean for the eurozone?

A. Germany IS the EU and it will do everything it possibly can to prevent this kind of development for several reasons: (a) It is the biggest lender to Greece and it won’t see a penny if Greece defaults; (2) Trust in the euro will be shaken badly if the zone fails to tackle the balance of payments and banking problems of such a tiny member (Greece’s GDP is less than 2% of the zone’s aggregate total in real terms); (3) Germany will lose clout and its leadership will be questioned; (4) It will encourage other members and countries like Russia and even China to defy the EU and challenge the euro as an emerging reserve currency for international transactions; (5) Any concessions to Greece will serve as a dangerous precedent for other heavily-indebted and bailed-out members in the eurozone.

Q. The Greece crises has been going on for years. What are your expectations for the end of this story?

A. Greece must default on all its obligations in an orderly and structured way. It must wipe the slate clean. It must create a “bad bank” for all the non-performing loans on the books of its banks. It must cut down government direct and indirect employment by 50% and divert these resource to generate youth employment. It must work with the huge and influential Greek diasporas everywhere to revive tourism, foreign investments, training and re-skilling programs, and find jobs for its surplus manpower abroad (as Gastarbeiter.) It must monetize the economy by radically cutting taxes and redirect spending towards high-yield projects and away from social welfare. Until it implements these tough measures it will continue to be the Sick Man of Europe, faced with a permanent risk of deflation. Japan has been going through a similar slow-motion crisis for more than 2 decades. Greece may find itself losing an entire generation if it is not careful and does not get its act together. Tzipras has huge political capital (popular support). Let’s hope he he uses it wisely.

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Author Bio

Sam Vaknin ( http://samvak.tripod.com ) is the author of Malignant Self-love: Narcissism Revisited and After the Rain - How the West Lost the East, as well as many other books and ebooks about topics in psychology, relationships, philosophy, economics, international affairs, and award-winning short fiction.

He is the Editor-in-Chief of Global Politician and served as a columnist for Central Europe Review, PopMatters, eBookWeb , and Bellaonline, and as a United Press International (UPI) Senior Business Correspondent. He was the editor of mental health and Central East Europe categories in The Open Directory and Suite101.

Visit Sam’s Web site at http://www.narcissistic-abuse.com