The Greek riots have unmasked its tragic future
THERE is a sense of malaise in Brussels after the terrible riots in Greece over the weekend. Their growing ferocity and frequency mean that EU politicians dismiss them at their own peril. In fact, this could be a glimpse into Greece’s future.
Assume everything goes to plan and the Eurozone manages to muddle through; by 2015 Greek bailouts will have totalled €240bn. This is over 100 per cent of Greek GDP and yet, at that point, Greece’s debt-to-GDP ratio will still be around 140 per cent. Hardly good value for taxpayers’ money. And this money has the potential to cause even more divisions, rather than bringing any clear sense of stability.
The latest package passed on Sunday commits Greece to another three years of austerity – reviewing how painful the last two years have been suggests this will probably not go as smoothly as hoped. Specifically, the programme commits Greece to 150,000 public sector job cuts over the next three years. Proportionately, as a share of population, that is the same as cutting over 800,000 jobs from the UK public sector, more than current UK plans and at a faster rate. Greek public workers and unions have no intention of giving in without a fight. One can imagine a situation where every parliamentary vote or every budget announcement prompts a new wave of protests. An early and most likely messy test will be the Greek general elections in April. In a sign of just how fine the line the Eurozone is treading in pushing economic reforms at the expense of democracy, the outcome of these elections is largely irrelevant. A condition of the second bailout deal is that all governing parties have to commit, in writing, to implement the EU/ECB/IMF imposed austerity measures. The question is whether this is sustainable.
The pressure being applied by the Eurozone on both the economic front (through massive austerity) and on the political front (by tying all governing parties to the same policies) leaves little room for manoeuvre or political discourse, which increases the chances that something may crack.
Even in an optimistic scenario, Greece will need significant fiscal transfers for the best part of a decade. Given that taxpayers from around Europe are likely to demand some level of control over how their money is spent (as they rightly should) the Greek public could be forced to accept tough economic policies decided by people sitting in foreign capitals for years to come. This also means that the protests we saw in Athens yesterday could be but a prelude of what is to come, as the numerous rounds of austerity really start to bite on the Greek population.
This all highlights the potential cost of trying to force a country into a fiscal and political straitjacket – something which the Eurozone seems intent on doing. The economic and political costs of a break-up or default are widely cited. But the costs and risks of the current bailout and austerity policy approach are now coming to the surface. It may not have reached tipping point yet but it is only a matter of time before more and more people start to question whether this economic and social pain is a price worth paying for a shared currency.
Raoul Ruparel is the head of economic research for Open Europe.