Something has been rattling around the back of my mind for the past month or two but it was difficult to put into words until very recently. The pieces started to come together a few days before New Year’s 2015, when I was reading an article on the New Yorker site entitled “The Trouble with Europe’s Grand Coalitions” by Yascha Mounk. They came into sharp focus with the recent victory of Syriza in the Greek elections. In his article, Mounk noted, in the course of a much broader argument, that the European Right has been gaining ground for the past several years, since 2008 really. Yet as Syriza’s recent victory has shown the European Left has hardly been silent of late itself. As growth in the Eurozone falters and the Euro begins to deflate two things have come into serious doubt within the European Union. The first is the worth of the major parties and coalitions which, through their enforcement of austerity policy, have led Europe to this juncture. The second, however, is the European Union itself, the project which much of Europe sees as the primary facilitator of the whole austerity program. This doubt – not merely in existing political parties but in the existing political order which birthed them, has created a climate in which Eurosceptic elements on both the Right and the Left have flourished.
I
As Mounk noted in his article, the far-right Swedish Democrats, Sverigedemokraterna, gained enough seats in the 2014 elections to the parliament, or Riksdag, that they were able to force the Swedish Social Democrats to govern from the minority. This arrangement lasted less than two months before it nearly collapsed and prompted a snap election (a last minute budget deal in December 2014 managed to avert the crisis). And Sweden’s radicalization, while surprising to many inasmuch as it is considered a bastion of European liberalism and socialism, is hardly a unique case. The hard-right Greek Golden Dawn party took 1/7 of Greece’s European Parliament seats in 2014, with 9.5% of the vote, and has taken 6.5% of the vote in the legislative election this past January, and holds 17 seats as a result. Marine Le Pen’s Front National has jumped from 18% of the vote in France's 2012 Presidential race, to 25% in the 2014 European Parliament vote. The United Kingdom Independence Party (UKIP) too has gained in strength in the Britain in the wake of its impressive showing in the 2014 European Parliament elections, where it took 27.5% of the vote, and 1/3 of the British delegation’s seats. (And that only five years after the British National Party (BNP) gained, and subsequently lost, two seats in the same body.)
There is also the Italian Five Star Movement led by, no joke, a former comedian by the name of Beppe Grillo. Founded in October of 2009 and taking 25% in the 2013 general election it now controls 1/6 of the Chamber of Deputies and 37 of the 315 seats in the Italian Senate, adamantly refusing to join any sort of political coalition. It has been called fascist (a comparison not helped by parliamentarians such as Roberta Lombardi) and several Deputies have proven quite bombastic in the past. Angelo Tofalo, for example made national headlines in January of 2014 when he shouted a fascist-era slogan while making remarks in the Chamber of Deputies. (Note: Link in Italian.) And all this even as Grillo himself has frequently proven inflexible and controlling. But Grillo has also indicated support for a wealth tax, gay marriage, environmentalism, and direct democracy, particularly e-democracy (to the detriment of representative democracy). It is arguably nationalist, inasmuch as it is Eurosceptic, but several of the policy positions it supports mark it as unique on the Right, at least in my estimation. If nothing else, it’s certainly anti-establishment.
Furthermore, the European Left, too, is on the rise in certain limited areas. Syriza, as noted before, took the majority in this January’s Greek snap election. Podemos, meanwhile, is gaining a massive amount of support in Spain, having taken 8% of the vote for the Spanish delegation to the European Parliament in 2014, despite having been founded only five months before the election. Podemos has since risen even further in popularity, being projected to take 25% of the vote in the coming autumn election in Spain.
Admittedly, many hardline parties – such as the left-wing Kommounistikó Kómma Elládas (KKE) in Greece or the British National Party, remain comparatively marginal political forces. The BNP peaked at just shy of a million votes in the 2009 European Parliament election and have been hemorrhaging votes since, receiving less than a fifth that number in the 2014 European Parliament election. The KKE are actually down by seven seats, and two hundred thousand votes, from a 2007 peak of twenty-two seats in the Hellenic Parliament. Nevertheless, it seems plain that there has been a movement away from the center since the 2008 financial collapse and as the Eurozone slides into a period of stagnant deflation.
UKIP and Front National were both known entities and had some political presence before now, but nothing like what they now have. UKIP saw a 9% increase in support at the polls in 2014, as compared to the previous European Parliament election in 2009 and, as noted above, Front National’s share of the vote increased relative to its share in the 2012 French Presidential elections by 6%. As compared to the previous European Parliament election, its share of the vote quadrupled. Sverigedemokraterna didn’t even have a single seat in the Riksdag eight years ago. They now hold 1/7th of the chamber.
The left-wing parties were just as marginal as Sverigedemokraterna. Syriza, originally formed as left-wing coalition, didn’t exist until 2004 and didn’t become a single, united party until 2013. Podemos, as noted above, is even more impressive in that it wasn’t even a party at the start of 2014 but now, in the months leading up to Spain’s autumn 2015 elections, holds a quarter of the vote in public opinion polling.
However, where new, ideologically-driven parties on the Right and the Left have captured the public imagination across much of Europe, long-established and mainstream Centrist parties have been battered for the past several years, both in the press and at the polls. Ignoring the temporary poll boost provided by the Charlie Hebdo attack Hollande is now the most unpopular President in French history as leader of the center-left Socialists. The Panhellenic Socialist Movement (PASOK), the social democrat party which rode into power in the October 2009 Greek Parliament election with 120 seats is so hated for having struck the bailout deals that it did that now, less than six years later it holds a grand total of 13 seats in the Parliament, barely a tenth of what it once possessed. Indeed, as Mounk noted in his article, many former enemies across Europe have come to rely on each other, forming “Grand Coalitions” across the center left – center right divide in order that the various establishment parties maintain their power in the face of populist uprisings. Centrist governments have even supported each other across national borders of late, as was the case when Spain’s Prime Minister Mariano Rajoy publicly backed Prime Minister Antonis Samaras of Greece in the days prior to that nation’s January election. All of this has led me to a single inescapable conclusion:
The established European political order is dead.
II
The evidence of the closure in a chapter of the continent’s political history is self-evident. The old, centrist, establishment parties, though they have not and need not be completely swept away, are obviously in a state of decline, perhaps terminally so. And if they are not yet terminal, they will undoubtedly prove marginal for the foreseeable future.
It is clear to see why. The slavish dedication of so many in government to austerity policy in the midst of an economic downturn has compelled debt and deficit reductions and, consequently, has either precluded stimulus or resulted in service cuts. This while taxes remain constant or, as is the case with several EU members, actually went up. (Pgs 8-12 of the linked PDF will offer an overview of where to find all the charts illustrating changes in EU tax rates.) The average voter is rarely pleased by service cuts or tax increases, particularly when simultaneous, but the political fallout and the real economic effects of such action can be mitigated should they occur during an economic boom. But to impose service cuts, however modest, while levying higher taxes, no matter how slight the increase, in the midst of a recession is equal parts foolish, dangerous, and mad. It inhibits demand and thus precludes the possibility of an increase in supply and the increased opportunities for employment which would inevitably result. More importantly for politicians, however, is the fact that, as a direct consequence of policies they have implemented, the average citizen has less money to spend and a weaker system of social security to fall back upon – they feel betrayed by their leaders.
To be fair, reducing debt, and placing controls on deficit spending is all well and good – indeed, I would even go so far as to suggest that it is admirable. The dire financial straits many governments found themselves in in the wake of the 2008 financial collapse obviated the need for fiscal reform. Admittedly, the Reinhart-Rogoff report, the academic paper much touted by austerity supporters and deficit hawks, was a complete fabrication, and economic growth does not inexplicably fall of a cliff when debt reaches 90% of GDP. Nevertheless, sovereign debt is only economically useful insofar as the governments which incur it can actually pay it or, at least, pay interest on it. But you cannot and should not take steps to prevent another crisis when you have yet to deal with the fallout from the first. Cutting spending in the midst of a recession could only result in the further depression of demand and, indeed, has resulted in the stagnation of the majority of the economies in the European Union.
Indeed, in Greece and Spain, recipients of the largest bailout packages, the demand by the troika of creditors for strict and harsh austerity measures have precipitated not merely economic stagnation, of the kind visible in France or Germany, or even contraction but complete economic collapse. Let us take Greece as an example. Since a 2009 peak the Greek GDP has decline by €100 billion or, roughly, 30%. Since 2008, the year the Great Recession began, it has declined by a seemingly more modest €60 billion or 21% Unemployment peaked at 28% in the latter half of 2013 and, as of October 2014, sat at 25.8%. Youth unemployment stands at a stunning 50.5%, which is actually down from the February 2013 high of 60%. Long term unemployment sits at 19.9%. Estimated labor force participation rates paint an even bleaker picture, suggesting that many simply aren’t part of the labor force anymore. The International Labor Organization (ILO) estimated that in 2013, the most recent year in which statistics are available, only 28.4% of those age 15-24 were working or looking for work - a drop of some 1.7% from 2008. Meanwhile, the proportion of Greek youths neither working, being educated, or in training rose from 11.4% in 2008 to 20.4% in 2013. Those that are working are working for less, as the second bailout package mandated cuts to the minimum wage. It was lowered in the summer of 2012 from €751 per month to €586 per month, or slightly less than €3/hr. This has resulted in the emigration of over 200,000 in the preceding six years, many of them valuable professionals. Meanwhile, the debt and the deficit, the only two things the bailout was supposedly meant to help, have gone up! The 2013 budget (the last fully available via Eurostat) had a deficit equivalent to 12.2% of GDP and debt in 2013 sat at an estimated €319 billion – far worse as compared to the €263 billion in debt Greece owed in 2008, though not quite so awful as the €355 billion it owed in 2011.
In return for loans from the various agencies and funds of the EU and the IMF, which really only transferred the private debts of unwise bankers into public hands, the European Union has imposed extremely harsh terms on Greece and Spain, among others. This, in itself, is understandable. Harsh terms mean rapid repayment and the more rapid the repayment the less time the other members of the European Union need to worry about a potential default. Or, at least, that’s the theory. As the above-enumerated figures would tend to indicate, however, lowering the minimum wage, demanding budget cuts and tax increases in the midst of an economic downturn can only deepen that downturn. When there is no private demand, and the government is disallowed, either by outside creditors or by itself, from artificially propping up demand to induce a real recovery the economy will continue to stagnate or shrink.
Even in states which have not been subjected to the full brunt of austerity- the French, Dutch, and Belgian budgets for example have actually seen modest increases (in total value, though they have shrunk as a percentage of GDP) since 2008 – the lack of a vigorous program of government stimulus has resulted in a stagnant, lethargic economy which has danced back and forth across the line from minimal growth to moderate contraction. And all the while unemployment remains stubbornly high and wages are stagnant or in decline – discontent over the latter fact only tempered by the general lack of inflation in the EU.
III
But perhaps the depredations are at an end. Title III of the European Fiscal Compact, signed in the spring of 2012 and put into effect in January of the following year, actually imposes fines (equivalent to 0.2% of GDP) on signatories who fail to keep their deficit to less than 3% of GDP and debt below 60% of GDP. Yet barely half the signatories managed to meet that target in 2013. France, one of the earlier signatories to the agreement, already reneged this past autumn when it produced a “no-austerity” budget, stating baldly that it couldn’t meet deficit targets until at least 2017. Apparently, it became clear that sudden rapid cuts to government spending might damage the already fragile economy. Italy, too, has taken steps that could put it in violation of the Fiscal Compact, cutting labor taxes. It would appear both states are taking full advantage of the German commitment to “flexibility” which was made in exchange for broad support for Jean-Claude Juncker’s nomination to the presidency of the European Commission. And with the late January announcement that the European Central Bank is to engage in a €60 billion a month program of quantitative easing it seems as if austerity is finally losing steam and support everywhere – everywhere except Germany.
With the evidence so clear, however, the question then becomes – why has no one done anything about this? Why have the various members of the European Union imposed an austerity plan upon themselves and upon several member states which actively inhibits growth? Austerity benefits no one – not the public, not businesses, not the government, and certainly not the political parties which have adopted it into their platform. In short, I blame two phenomenon – a desire, after the beginning of the bailout program, to avoid more “lemon socialism” and a seemingly necessary and prudent deference to Germany.
Let’s consider the matter of lemon socialism – socializing the costs and losses of private entities. Essentially, this is what the Greek and Spanish bailouts are. Greece, Spain, and other recipients of bailout aid don’t owe any less debt than they did before the bailout, they simply no longer owe debt to private institutions. The citizens of each country in the European Union are now on the hook for hundreds of euros per capita because private banks and the governments of other countries were either unable or unwilling to adequately calculate risk properly. At the time it was a prudent and necessary step – sharing a common currency would have left the other nations in the Eurozone with precisely zero insulation from the effects of a Greek or Spanish default. Taken in conjunction with the fact that not a few of Greece and Spain’s creditors were European banks and it became necessary, for the good of the European economy and the stability of the Euro, to begin the bailout program.
But no one wanted to do that again. And the only way to avoid doing that again was to force member states to adopt balanced budgets. And the only way to do that was through a treaty like the European Fiscal Compact, regardless of how flimsy the actual enforcement mechanism is. If binding oneself to an agreement on deficit limits is what it takes to ensure that your partners do the same, to ensure that you don’t have to bail them out later, then of course you take the plunge. And you agree to Titles IV and V of the compact, as well as the 2011 Euro-Plus Pact which begin the process of tighter fiscal integration between member states. After all, limiting deficit spending means limiting the capacity of any single national government to stimulate its own economy – already a difficult prospect when you share a currency with over a dozen nations, over a dozen separately governed economies. There is an advantage to tighter fiscal coordination when working with less money.
But none of this answers the greater question – why was this policy adopted with such rigor before the effects of the 2008 crisis were fully alleviated? The answer is that they did seem fully alleviated. 2010 and 2011 both showed an average annual growth within the EU and the Eurozone of an unspectacular but relatively consistent 2%. The majority of this legislation was written in 2011, with the European Fiscal Compact coming out before the end of the first quarter of 2012, when the second dip of the European Union’s double-dip recession began.
Any subsequent stubbornness has largely been a consequence of German intransigence. The German economy constitutes a quarter of the Eurozone’s GDP and a fifth of the European Union’s. Indeed, on its own it is the fourth largest economy in the world. It experienced a greater initial decline in the wake of the 2008 financial collapse than most other Eurozone economies but also experienced a more powerful resurgence in 2010-11, netting nearly 4% GDP growth in 2010 and 3.6% in 2011. It has also managed to run slim budget surpluses in 2013, 2014, and 2008. And as its economy is largely export-driven (45% of GDP is derived from exports) it can withstand and, indeed, may welcome a weaker and more competitive Euro. When Germany has talked the European Union has been compelled to listen and Germany has had some stern words for its Union partners.
Theories for why Germany is so set in its ways on the subject seem to abound. Some have ascribed German intransigence on austerity and the possibility of a Greek debt write-off to moralizing. As Benjamin Dodman noted in a recent article for France 24, the German word for debt, “schuld,” is also equivalent in meaning to the word guilt. Perhaps, in Germany, the Protestant work ethic and the spirit of capitalism have resulted in contempt for Europe’s debt-ridden Catholic south. Others, however, have suggested that Germany is simply thinking in the longer term, and is attempting to make painful structural adjustments in the face of an aging population and in the hopes that loosening fiscal restrictions will spur reindustrialization and further the cause of economic growth. Still others suggest that Germany remembers the difficult time it experienced during the reunification of the 1990s and is fundamentally convinced of the rightness and necessity of sacrifice. Recent position papers obtained by Reuters and meant to be presented at a meeting of Eurozone finance officials later this week suggest that the German position is based around a belief that balanced national budgets will build credibility with creditors. This is the stated logic, if not necessarily the actual logic, behind their adamant refusal to write off any Greek debt. And still others have claimed that Merkel and her party are beholden to a neoliberal supply side orthodoxy. Several have simply noted that, until the Euro began to deflate in value at the end of 2014, Germany simply had no reason to change course. Its economy is, after all, export-driven, and the competitive advantage afforded by a Euro with a weak exchange rate suited them just fine.
From my limited vantage point it would appear that Germany’s economic strength has partially insulated it from the economic ill effects plaguing other Eurozone members and this has made it more difficult for the German government both to comprehend the position of its peers in the European Union and to publically sympathize with them in full view of the average German voter. The average German sees German money going to prop up Greece and Spain; German labor helping to prop up the value of the Euro even as it is dragged down by France and Italy. It is simply not politically safe for Merkel’s CDU to allow its partners in the Eurozone to accumulate debt – it makes the German voter feel used. And as the bailout program has illustrated in Greece, Spain, Cyprus, and other nations, it is not economically safe. To Germany, the various agreements signed in 2011 and 2012 were signed for a reason and must be adhered to as strictly as possible. A little flexibility now might mean complete abandonment of fiscal responsibility in a more active market and Germany will not risk that. Regardless of why Germany has pushed austerity as hard as it has the point is that it has and will continue to do so.
IV
Yet what seems truly worrisome, to my mind, is how things will proceed from here. Admittedly, as of this past November some 56% reported feeling optimistic about the future of the Union, the same as the Spring 2014 report. This, on its own, is better than the 48% low reached in Autumn 2011 though nowhere near the 69% high of Spring 2007. But as I said at the beginning of this article the European Union is not trusted as an institution and Brussels is largely viewed as unresponsive to the public will.
To be fair, Eurostat – the official statistical agency of the European Union – shows increasing support for the Union as an institution in the polling data from its December 2014 Eurobarometer. Of the Union itself, some 39% expressed a positive view of it as an institution, with 37% indifferent. When compared to Spring 2007, where 48% expressed a positive view and 35% a neutral view this is quite bad and may be mitigated only a little by public optimism – the expectation of future change. Admittedly, 39% still a solid plurality, if far short of a majority, and a net gain of roughly four points over the midsummer polling in June 2014, the month after the elections for the EU Parliament. But that means that there is still a full quarter of Europe which is discontented with the Union. Furthermore, while there is an increasingly positive view of the Union amongst the general public this mood seems only to have taken hold in the months leading up to and following the 2014 European Parliament elections – the ones in which establishment parties fared very poorly. In every other conceivable metric the European Union polls badly, only appearing good when compared to national governments and parliaments, which are trusted on average by a mere 29% and 30% of their populations respectively.
In a survey conducted by Pew Global in the run-up to the 2014 European Parliament elections some 71% reported feeling as if their voices did not count in the EU. A further 65% reported that they felt the EU did not understand the needs of its citizens with yet another 63% declaring the EU intrusive and 57% suggesting it was inefficient. Eurostat’s own data shows that, even in the aftermath of the elections, better than 53% of those polled feel that their voices don’t matter in the Union, with only 40% of the opinion that they do. And though there is a roughly even split between those who believe that this worst is behind Europe and the worst is to come in the Eurostat polling there is almost universal agreement in many nations as to the miserable state of the economy at present. In a country by country breakdown only eight countries came away with a net positive outlook. In France an incredible 90% of Frenchmen feel the economy is doing poorly, as do 98% of Greeks polled.
All those numbers would seem, on their own, to constitute a stunning indictment of austerity policy. When taken in conjunction with the available economic data and the steady erosion of electoral support for those parties supporting austerity it seems altogether damning. Austerity has failed – both as an economic program and as a politically astute policy. For precisely these reasons, I would ordinarily feel little concern over the death of austerity. Unfortunately, it has been under the aegis of austerity that the latest concerted effort to better integrate the European Union has taken place. The European Fiscal Compact, the Euro-Plus Pact, the “Sixpack” of regulatory reforms passed in 2011, the establishment of the European Financial Stability Facility and the separate Financial Stability Mechanism, along with a plethora of other initiatives, were all begun in response to the crisis. Indeed, all the efforts of the past six years to integrate monetary and fiscal policy have been taken with an eye towards strengthening the austerity regime in Europe.
And this is a problem – the austerity pushed by establishment parties has now become linked in the public consciousness with the idea of European integration and unity. Contempt for the European Union is now contempt for an institution which is perceived as the driving force behind austerity. And a vote against austerity is increasingly a vote for a more divided Europe. There is increasing skepticism as to the viability of the European Union and the Right and the Left which have risen in place of the centrist establishment are in fundamental disagreement as to how the Union might be abolished or what might take its place.
In other words, Europe, as a united entity, risks disintegration because the most recent round of integration has been pursued under the aegis of austerity. This is why UKIP has gained in strength. It is why Front National and Sverigedemokraterna have grown in power. It is why Syriza has won control of Greece, and why Podemos grows in strength daily.
2014 was, to quote Milton, “as the sound of thunder heard remote.” A storm is gathering over Europe, one which threatens to divide the continent and undo decades of work towards unity and prosperity. The current course of austerity is damaging and untenable; and quantitative easing, while helpful, is not enough to stimulate growth. The various peoples of Europe must decide whether they will look for answers to their current predicament on the Right or the Left. How that question will be answered may be impossible for anyone to predict at present – I certainly won’t venture a guess. But I know Europe will begin to formulate its answer soon, beginning with how it deals with Greece.
V
In brief, I suspect Greece will be compelled to abrogate its debt and leave the Eurozone. At the moment Greece does not want to negotiate with its collection of lenders – the European Commission, European Central Bank and International Monetary Fund – collectively known as the troika, instead requesting talks directly with the governments of the European Union themselves. However, following discussions with Jeroen Dijsselbloem, President of the Eurogroup, and the finance ministers of the Union’s other members on Thursday, Prime Minister Tsipras and Finance Minister Yanis Varoufakis appear to have agreed to continuing talks with the troika for the moment.
Whether or not Greece will remain satisfied with this arrangement indefinitely, however, is another matter. On the one hand, Greece’s creditors want to ensure that Greece keeps paying, at least in some fashion. On the other they may not wish to be seen as legitimizing a negotiation process many believe shouldn’t even be happening. At the moment, it appears that the Union is at least willing to entertain the idea of a negotiation and the possible replacement, in some as yet unexplained fashion, of the troika with a more agreeable enforcing body.
Beyond this, however it is difficult to tell what Tsipras and Varoufakis, want right now – campaign rhetoric, negotiating rhetoric and statements of actual policy have melded together with the fearful rhetoric from various European officials and investors. Indeed, German Finance Minister Wolfgang Schaeuble was quoted by the BBC yesterday, declaring that, "None of my colleagues so far understands what Greece wants... whether Greece itself knows is not clear either."
Immediately following Syriza’s election victory it seemed as if the opening Greek position would be for a write-off of half of the debt owed the troika and a restructuring of the remainder so that payment was tied to GDP growth in some fashion, with a moratorium for at least the initial stages of the recovery. Now the argument appears to be for a brief moratorium and a refinancing of 30% of Greece’s debt load and continued implementation of roughly 70 percent of the reforms required under the existing deal with the troika. Tsipras has also intimated his belief that Germany owes Greece some €11 billion due to loans the Bank of Greece was compelled to make to the Nazi regime during the Second World War. His coalition partners, the Independent Greeks, further belief that Greece is entitled to war reparations.
Syriza has also proposed a raise in the minimum wage from €580 to €751 and the removal of spending restrictions in order to fund the restoration of the national health service as well as a series of increases in pensions and welfare allotments which it estimates will cost a total of €11.3 billion annually. The injection of money back into the economy will undoubtedly boost demand – particularly given the fact that these payments are intended to favor low income households and the elderly, who live on fixed incomes. Any money those households get must be spent in order that they may sustain themselves in a dignified state.
Assuming that this is what the Greeks are aiming for, however, they won’t get it. No government in the European Union is going to risk the domestic political backlash that would come with writing off public debt which they, and thus their taxpayers, had subsidized. Though Merkel has indicated a vague willingness to compromise, she has already come out against Syriza’s initial proposal quite strongly. Given the relative economic strength of Germany at the moment, and the size of their contributions to the bailout package their word will carry considerable weight in any negotiations. Besides, as Margaritis Schinas, a spokesman for the European Commission stressed recently, any change in the terms of the bailout would require the consent of all contributing members.
The idea that Germany would agree to any sort of repayment is equally ludicrous. Regardless of the merit of the claim, and it is not entirely without merit, Germany is as unlikely to give away money in the form of a reparation payment as it is of giving it away in the form of a debt write-off. Though the Germans are understandably sensitive to the misdeeds of the relatively recent past it seems likely that, if the suggestion is raised in negotiations, they will either remain silent or argue that Germany is not the same country now. If in a bad mood, the Germans might also note that Greece was a recipient of aid under the Marshall Plan and suggest that as much damage was done by the Greek Civil War (1946-49) as by the Occupation (1941-45).
Tsipras and Varoufakis must know this and, it appears, are willing to let both reparations and debt reduction slide if it means they can secure other concessions as a consequence. Restructuring the payment plan should prove uncontroversial – after all, if the current plan of payment is inhibiting growth then the current plan is responsible for placing the capacity of the Greek government to pay in doubt. More difficulty will be had in securing a temporary moratorium on payments but even that may be surmounted. A firm schedule of payment could be fixed for at least nominal sums – demonstrations of good faith to various governments of the EU and to the voters those governments must cover themselves in front of.
The real difficulty will be in convincing the troika and the German government not to protest Greek efforts to lift government spending restrictions. €11.3 billion is a lot of money to spend annually. Syriza claims that it can recoup most of this by cracking down on tax avoidance and fraud. Technically, this is true – as of October 2014 the Greek government was owed roughly €70 billion in arrears and is losing between €10 and €15 billion per annum. So the money is there to fund Syriza’s proposed package of programs. But does the will exist to pursue such a program?
Varoufakis has argued that the relative outsider status of the party ensures it is mostly free from the traditional corruption of Greek politics and that the party has a limited window within which to act and begin a major reform of the revenue service. In itself, such a statement cannot be held in doubt – Syriza hold the majority and are only one seat away from an absolute majority amongst the elected membership of the Greek parliament. It has been the primary opposition for barely three years and was largely inconsequential before then. Syriza is a party that is, for the moment, likely as honest as it claims to be, or very near so if only because it is likely no one bothered to woo its members. Nevertheless its capacity to engage in a meaningful structural reform is certain to strike many as doubtful.
As a condition of the bailout, Greece, under the PASOK and New Democracy-led governments, has been required to overhaul its revenue services in the expectation that such an overhaul would increase the national income and help to repay the troika. So far, efforts to increase the independence and power of Greek tax inspectors and the regularity of audits, particularly on large firms and high earners have resulted in minimal success. In the two year period from January 2012 to December 2013 Greece recovered only €553 million. That alone is not encouraging. Yet even if Syriza possesses the will to provide the revenue services with the necessary staff and political independence to ramp up audits, collect arrears, and scare tax dodgers into compliance that is a process that would take years. The amount Greece loses in taxes every year constitutes between 15-20% of what the national revenue should actually be. There’s simply no way to do an audit quickly or to double the size of a government department without any difficulties cropping up, especially not when faced with the herculean task of recovering a fifth of the national revenue. Most EU governments, therefore, are likely to conclude that Syriza will have to borrow heavily for the foreseeable future to fund its new government programs.
Here, I suspect, is where negotiations will stumble. Despite Syriza’s protests, European leaders will doubt Syriza’s ability to balance the national budget in the short and mid-term purely through more rigorous enforcement of tax law. Others have tried and failed while more concerted efforts will take years to come to fruition. And if the Greek economy fails to grow with sufficient speed, no matter how small that risk is, it means that Greece will simply be building up more debt. Any payment plan, whether tied to GDP growth or otherwise, means nothing if you believe that the national debt load will simply become unsustainable and result in default anyway. Yet it would seem that a restructuring of the existing payment plan and a removal of at least some spending restrictions would constitute an absolute minimum for Tsipras to proceed with negotiations.
And therein lies the problem – no one has a problem with Greece restructuring its plan of payment, so long as they’re paid in full in the end and don’t have to perform this sort of service again in the near future. But a new program of expenditure, for which there is no guaranteed stream of income and which would therefore directly violate the terms of the agreement with the troika jeopardizes that payment in a way that will scare Greece’s various EU creditors – Merkel’s German hardliners in particular. But Greece badly needs to stimulate growth, while Syriza badly needs to deliver on its campaign promises to remain in power. Syriza may be willing to concede on a few budget items but, by and large, seems determined to secure acceptance of its new budget from creditors. They may be willing to accept some modifications but very few – the budget is almost entirely non-negotiable, for both sides – and that will be the undoing of the European Union’s relationship to Greece.
If Greece should fail to gain these concessions they will almost certainly leave the Eurozone or, at least, begin to take steps in that direction once the European Central Bank begins to cut ties. At the moment, Syriza has ruled out a Greek exit, as have their coalition partners. This reflects the will of the nation’s majority, with 69% of Greeks polled hoping to keep the euro, rather than return to the drachma. Yet, roughly a third of the members of Syriza’s central committee, representing several more radical parties before the merger which gave birth to a united Syriza, have openly supported economic secession in the past. The KKE, as strong as Syriza’s Independent Greek coalition partners have expressed support for such a move. And, as Pew reported in the spring of last year only 33% of Greeks view the EU positively, and just 17% think economic integration has done them well. 85% feel alienated from the EU and 86% resent its meddling in their affairs. Therefore, if negotiations stall for long enough or go badly enough, it seems probable that the Greek fear of leaving the Euro will be outweighed by contempt for an organization which they feel has degraded them and tried to play them for dupes.
It will be painful and messy, and there will likely be a great deal of finger-pointing and litigation involved. But such an action could serve as a rallying cry for Eurosceptics – particularly those on the left given Syriza's leanings but also those on the right. The ineffective measures taken by centrist parties, in individual countries and in the Union as a whole, to address the current economic crisis have put the project of further European integration on hold indefinitely. Worse, it has opened the way for Eurosceptic parties on the right and the left to take power. This will only further wreck the ability of the EU to function effectively – fueling further Euroscepticism. Indeed, though it is in no immediate jeopardy it seems not unreasonable to question whether the continued viability of the union is in doubt.
Greece is the first hurdle and the first yardstick. If a settlement is reached, as the recent suggestion of Greek concessions seems to promise, Greece stays in the EU then the EU survives. It will be hobbled by bad centrist policy and divided government will eliminate the possibility of an effective replacement for the foreseeable future. But it will live. If, however, Greece leaves, this suggests that the European Union is not indissoluble and that some nations are better going it alone. If any of them prove that or even suggest the possibility of it by their departure then populists and nationalists on the left and the right have a battle cry to embolden themselves and the European Union will not only be divided but will, for all practical purposes, dissolve.
Update: Germany has just rejected the Greek request for a six-month loan extension, during which time Greece had hoped to negotiate with the European Union on a more permanent agreement. Whether the rest of the Eurogroup will concur in that decision will be determined at a meeting scheduled for tomorrow but German intransigence is bringing a confrontation closer.