A sad incident got picked up by the German national media, made even sadder by the very fact that it got picked up: in the tourist town Monemvasia at the southern tip of the Peloponnese in Greece, some local guys accosted a 78-year old Dutchman who has lived there since the 1990s. They thought he was German. So he corrected them. “German or Dutch, it’s the same thing,” they told him and broke his jaw and nose.
Two guys in their forties were arrested and charged. Police chiefs visited the victim in the hospital. And German tourists had one more reason not to vacation in Greece—though aggressions occur in all countries, including Germany, often with deadly outcomes. Nevertheless, fears of these kinds of incidents, mediatized strikes and tumults, and images of German Chancellor Angela Merkel as a Hitler figure have coagulated into a toxic mix. And Germans decided to vacation elsewhere. It’s going to be a tough season for the Greek tourism industry, the only industry that actually grew last year.
The Greek economy has shriveled for four years—in the last two years by nearly 15%. Small businesses cratered, unemployment is spreading like wildfire, and those who still have jobs watch their pay and benefits dwindle. The government, up to the gills in debt, is cut off from the capital markets and defaulted on part of its debt. The country depends on being spoon-fed by the bailout Troika—the ECB, IMF, and European Union. One spoon at a time. With periods of desperation in between.
The Troika has used this process as a carrot and stick, rewarding Greek politicians and bureaucrats for good behavior (promising and implementing reforms) and punishing them for bad behavior (reneging on reforms). And so the bailout fund EFSF transferred €4.2 billion in scheduled aid a few days ago, the first tranche of the second bailout package. But it was €1 billion short—the stick that all political parties should heed.
And the Greek political elite have used this process to extort billions from donor countries. Early November, Giorgios Papandreou, Prime Minister at the time, said a single sentence about a referendum on staying in the Eurozone, and it knocked worldwide financial markets into a vertigo-inducing tailspin.
In early January, the new Prime Minister Lucas Papademos turned extortion against his own people to get labor unions to agree to Troika-imposed wage cuts. “Without an agreement with the troika and the ensuing funding, Greece faces the threat of a disorderly default in March.”
“Disorderly default” has been the ultimate threat ever since. President Karolos Papoulias added to the pressure by announcing that the new out-of-money-date would be June 10. And now comes the charismatic 37-year-old Alexis Tsipras, leader of the left-wing SYRIZA, which, according to the latest poll, has surged to number one in the June 17 elections. Under him, Greece would stay in the Eurozone, he promised, but without adhering to the reforms. He wants the Troika to open the money spigot without conditions. Let the good times roll—at the expense of taxpayers elsewhere. And he ratcheted up the extortion racket one more notch when he proclaimed, “If the disease of austerity destroys Greece, it will spread to the rest of Europe.”
In a broad counterattack, top officials from across Europe have started to openly discuss Greece’s exit from the Eurozone, sometimes in an encouraging manner. There was EU Commission President Jose Manuel Barroso with the dual message that “we” wanted Greece to remain in the Eurozone, “but the ultimate resolve” to do so would have to come “from Greece itself.” A number of ECB council members have also voiced that possibility, including President Mario Draghi. IMF Managing Director Christine Lagarde suggested that the other option for Greece, if it didn’t honor the budgetary commitments, would be its “orderly exit.” And today, German Banking Association President Andreas Schmitz jumped into the fray, wondering “if the country with its own currency, supported by a sort of ‘Marshall Plan’ from the European Union, wouldn’t be better able to solve its problems.”
And the noose tightened. About €800 million had been yanked out of Greek banks in a single day, caused by “great fear that could develop into panic,” President Karolos Papoulias warned political leaders. More than €5 billion had apparently evaporated since May 6. And the ECB, which is supposed to conduct refinancing operations only with solvent banks, cut off Greek banks from Emergency Liquidity Assistance because they haven’t been recapitalized after the haircut of Greek bonds on their books had wiped out all traces of equity capital.
There isn’t much room for optimism. Pushed into a dead-end like this, a country would normally print money to fund its deficits, and it would devalue its currency to become more competitive, however much pain that would spread around. But Greece can’t “solve” its problems that way. Not yet. And its caretaker government is helpless. So words fly about wildly from all directions to influence the Greek people who’ll get another whack at deciding their future on June 17. But the Greek people have been driven to the limit.
Enjoy reading WOLF STREET and want to support it? You can donate. I appreciate it immensely. Click on the beer and iced-tea mug to find out how:
Would you like to be notified via email when WOLF STREET publishes a new article? Sign up here.
