Wed | Jun 20, 2018

Kicking the Greek can down the road

Published:Monday | June 27, 2011 | 12:00 AM

Last week, as protesters chanted outside the Parliament building, the Greek government survived a confidence vote. This will enable it to proceed into this week's vote on its austerity package.

Greece is in a spot of bother. In fact, in terms of its debt-to-GDP ratio, it is in worse shape than Jamaica was back when we nearly imploded, two years ago. With creditors dumping its bonds and its credit rating being quickly downgraded, Greece remains solvent only because its partners in the European Union are keeping it afloat.

When the euro was launched over a decade ago, American economists, in particular, predicted that it was doomed to failure. They maintained that by creating a monetary union without a political one, the euro's architects locked in a tension that would ultimately become unsustainable.

At first, those predictions looked rather rash, as the currency gained worldwide acceptance as a reserve currency, and as Europe enjoyed a long boom. But when the global crisis hit three years ago, and the spectacular booms in some of Europe's peripheral economies came to a crashing end, the Cassandras began sounding pretty smug.

Heavy debt load

The euro had enabled Athens to borrow at German rates, yet spend with Greek enthusiasm, in a nation which takes what might be called a rather sceptical attitude to tax collectors. So when the boom days ended, Greece's heavy debt load made it especially vulnerable to a downgrade of its debt. Greece was another Jamaica, with slower sprinters but better (well, for a while, at least) footballers.

When the masters of the eurozone in Brussels, Berlin and Paris came to the rescue, they demanded a pound of flesh, as the IMF did of Jamaica. This brought the protesters on to the streets, angered that with their attempts at economic micromanagement, the Germans were doing with the euro what they had failed to do with their armies - take control of foreign lands.

But the conflict over Greece is more complex than a Greeks-versus-foreigners one. Although this narrative isn't easily captured in sound bites and 15-second newsreels, there is also a fissure opening between Greeks and Greeks.

In the minds of some reformist intellectuals, the culprits in this drama are not the Germans, Brussels bureaucrats or the IMF. It is Greek politicians, who are hiding their own failings and corruption behind populist rhetoric. To the extent an onerous bailout forces the existing model into collapse, goes this line of reasoning, the sooner it will hasten the departure of those responsible for the mess in which Greece finds itself.

In some respects, therefore, Greece is going through a revolutionary moment, one that has the potential to effect a major transformation of the country's politics and economy. Nonetheless, it is not clear that a revolution itself is imminent. This is because Greece's almighty partners have every interest in kicking the can further down the road.

Lehman brothers sequel

If the Greek Parliament were to vote down the government's proposed austerity package this week, the country might be forced to default on its loans. If it defaults on its loans, French, German and American banks, exposed to Greek debt, would face losses. Some analysts fear that as they unloaded assets to cover those losses, they could create a tailspin similar to 2008's. Some, therefore, bill this moment, Lehman Brothers - The Sequel.

There is some debate as to whether or not this is a realistic scenario. Nonetheless, it is likely that neither the French nor the Germans want to find out. They will almost certainly continue to string the Greeks along, buying the government in Athens some breathing space, while giving their own banks time to gradually unload Greek bonds.

Sooner or later, Greece seems likely to implode. When it does, the euro will struggle not to go with it. And until it happens, a cloud will continue to hang over Europe's other peripheral economies, as well as the global financial system. A crisis may be postponed, but the economic recovery will continue to remain anaemic.

John Rapley is the Bradlow fellow at the South African Institute of International Affairs. Email feedback to and