CONTEMPORARY GREECE, like Russia in Winston Churchill’s account of October 1939, is “a riddle, wrapped in a mystery, inside an enigma”. Just as Churchill could not forecast Russia’s actions then, so also now are Greece’s unpredictable. But there is one common key: their national interest.
This week the Greek parliament passed further severe austerity measures to ensure it will receive the next €8 billion loan from the European Union and the International Monetary Fund necessary to avoid sovereign default, as tens of thousands protested against the job, pension and pay cuts in the streets. EU leaders struggled to strengthen the euro as they came under worldwide pressure to take action that would head off a deeper recession.
These three levels of action – national, European and global – reflect the links that connect economies in a world that is now much more inter-dependent than at the outbreak of the second World War. A failure to take decisive and appropriate political steps to prevent market panic and economic disintegration could be as disastrous as was the case on international security in the 1930s. Appropriately, most of the leaders capable of taking such decisions are gathered this weekend at the Group of 20 meeting in Washington. Unfortunately this economic turmoil finds them ill-prepared to tackle it. The political leadership, will and institutions necessary are either lacking or under-developed. Yesterday’s steep falls in market values came as reports circulated in Athens that the Greek government is preparing contingency plans for an orderly sovereign default within the euro zone. While this is not its primary intention, it does reflect a widely accepted reality that the country cannot afford the level of debt already taken on, especially when combined with the levels of austerity now being imposed to establish the government’s political credibility.
The riddle of that policy contradiction rattles market players who know any such default will hit French and German banks which are heavily exposed to any Greek default. This week’s calls by the IMF for them to be recapitalised are timely and correct. The mysterious refusal of European leaders to heed these warnings until this last minute only adds to the confusion. So does the enigmatic approach towards the crisis by US policy-makers deeply divided between the Obama administration which sees the need to stimulate growth by quantitative easing and public expenditure and his Republican opponents who denounce that as inflationary (echoing German fiscal conservatives). Chinese leaders who blow hot and cold on whether to intervene constructively in European bond markets are equally confusing.
Greece’s deep national interest, like Ireland’s, lies in finding a coherent, jointly-determined, balanced and just outcome to the euro zone’s deep problems, not in unilaterally defaulting and leaving it. That latter course would certainly tumble the world into a deeper crisis than the present one. We need much more effective political leadership and common politics at European level to avoid that.