Luxembourg Finance Minister Luc Frieden said it out loud: “If the Greek people or the Greek political elite do not apply all of these conditions … they exclude themselves from the Eurozone.” All of these conditions. And there are a lot of them. Then he added the crucial words: “The impact on other countries now will be less important than a year ago.”
Playing for time had been the strategy all along. Governments established bailout funds. Markets, banks, and multinationals adjusted. The ECB figured out how to circumnavigate its treaty-based restrictions on monetizing sovereign debt of member states. And the national central banks that own the ECB, particularly the Bundesbank, got used to these circumnavigations. The fear of financial contagion has subsided. A kind of calm has set in. And politicians like Friedan see in this calm a sign that markets have accepted Greece’s exit from the Eurozone.
Greece might want to decide that it would be better to exit the Eurozone, rather than actually implementing the budget cuts, Friedan said. Returning to the drachma and devaluing it might create a more competitive economy. “It might be something which would allow Greece to get a new start,” he said.
With all the pieces in place, it is now politically correct to admit that Greece is a hopeless case, that its political elite and institutions are such a mess that they simply don’t belong in the Eurozone. This too is part of the procedure of kicking Greece out of the Eurozone.
Northern Europe hasn’t forgotten that the Greek political elite misrepresented deficits and debt for years in order to meet the requirements for acceding to the Eurozone—and to cheap euro loans. It came out after a hair-raising spiral of budget-deficit recalculations: in 2009, the deficit wasn’t 6% of GDP, but suddenly 12.7%. In 2010, as bailout funds were slushing into the political system, sunlight hit the shenanigans—and shocked governments up north. The deficit jumped to 13.6%. In late 2010, EU’s statistical agency Eurostat audited Greece’s books. And the actual deficit was 15.4%. Life in the Eurozone was over.
But the markets weren’t ready. They swooned every time Greece blinked. To pacify them, near-monthly summits were instituted, each with a Merkozy dog-and-pony show that offered promises of ever greater bailouts and ever higher firewalls. And it gave everyone time to prepare for the inevitable.
The Greek political elite that have tricked their way into the Eurozone have done nothing since then to show that they can be trusted. Time and again, they promised reforms, but after they got their hands on the bailout billions, they didn’t follow through, or did so insufficiently. And Sunday, while protests were raging in front of parliament, Greek politicians inside, who were supposedly debating the very measures the people outside were so enraged about, were in the lounge … watching a basketball game on TV.
Even German business leaders have lost patience with Greece, though it is an export market for them: 57% want it to exit the Eurozone and reintroduce the drachma, according to a poll by Manager Magazin. The push to get Greece to leave the Eurozone is almost complete, but now a new theme is coagulating into words.
“The state with its phantom retirees and rich tax dodgers, a state without functioning administration,” has no business being in the European Union, said Franz Fehrenbach, CEO of Robert Bosch GmbH, the largest automotive component maker in the world. The Greek system is “ramshackle” and “an unbearable burden.” The EU should encourage Greece to leave both the EU and the Eurozone, but if it doesn’t leave voluntarily, the EU must change its laws so that Greece can be forced out, he said. And there were other countries on his list, but he didn’t say which. Would Portugal be next?
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.