The Tortured Relationship Between Greece and Europe

The past few weeks have been a veritable roller-coaster ride in Greece, and more turbulence lies ahead. Pundits can disagree about the reasons for Greece’s mess—the rough outlines of the debate are that it is a victim of heartless German austerity or that its corrupt governance and sclerotic economy are to blame. Whatever the main cause, there can be little doubt that the election of Syriza was a game changer in the debt crisis afflicting the country, because it was the first time that a populist anti-austerity party took power in the euro zone. It almost took power in 2012; pre-election polls suggested it could win, but its message of rejecting austerity was interpreted by many Greeks as a recipe that would have led to the ejection from the euro, and at the last minute many voters changed their minds and selected mainstream parties that continued the same policies of the previous years. The subsequent two years saw a worsening of Greece’s condition and hence during the election campaign late last year many were willing to gamble Greece’s euro membership by voting for Syriza, which won a resounding victory in January 20015. Since then, the fears of many Greeks in 2012 have been shown to be true: creditor countries will not compromise and the cost of rejecting their demands of austerity is a return to the drachma.

No More Austerity Please

And so we now have the sad spectacle of a radical left wing government that, on July 15^th, voted for policies, such as lower social spending, higher taxes on the poor, and privatizations, that go against it raison d’etre. Even worse than this ideological volte-face is that it is continuing the policies of its predecessors which have been catastrophic for the country: under five years of austerity Greece's debt has ballooned, its unemployment has skyrocketed, and its economic output has plummeted. These confused policies are taking place because Greeks themselves are confused about the euro, displaying contradictory and fantastical preferences that are transmitted to the country’s leaders via the democratic process.

This was made clear by my recent stay in Greece. I arrived in the country on July 5^th, the day of the referendum, which was perceived to be historic because the stakes seemed to be so high: both Angela Merkel and Francois Holland declared that a “No” would mean an exit from the euro, and this threat was taken seriously because, as the leaders of Europe, the preferences of Germany and France matter most for the politics of the EU. Polls before the vote showed that the No side was slightly ahead, and that the Yes side was catching up. But the No side won with a resounding majority. This happened largely because many Greeks ignored, or wanted to challenge, the threats emanating from France and Germany. Also important was the fact that Prime Minister Tsipras told his electorate that voting No would only strengthen his hand in negotiations, not lead to Grexit. He said this because he knew that the majority of Greeks fear being ejected from the currency. And herein lies the source of much of the country’s confusion: they want to remain in the currency union even while they recognize that it has been harmful and humiliating for their country.

This mix of sentiments was clearly expressed to me by a prominent professor of political economy at the University of Athens. Like most other elites in the country, he voted Yes in the referendum and is in favour of the euro, and he told me with a tone of conviction that the currency is in the best interests of Greece. But a little probing reveals a more complicated picture. He concedes that the austerity policies of the past five years have been a disaster and created a lot of social pain, and knows that the third bailout being negotiated will likely cause more of the same. He also recognizes that the euro is a deeply flawed system: a currency union without the requisite political union that is a sine qua non for its proper functioning. I asked him how he reconciles these flaws with his pro-euro attitudes. He first told me that geographically Greece lives in an unstable neighborhood, and without the euro “it would be left alone”. He also said that initially the euro coincided with a mini golden age in which standards of living rose for most. On the question of the lack of political union, he said that it might take 100 years, but it will happen.

Thus the euro for him has meanings that are not monetary, or not rooted in the concrete features of the currency. Rather, they are based on geopolitical fears, on memories of years of economic growth which coincided with the adoption of the currency, and on a faith—faith—that a political union will happen in the next 100 years.

His views are by no means unique to him; they are common among the country’s elite. The masses views on the euro are not dissimilar. Polls say that the majority want to remain in the euro, and talking to many locals during my stay in Greece gave me the impression that those numbers are accurate. But the numbers obscure as much as they reveal. Many support the euro because of an idealistic attachment to the EU, while others prefer keeping the currency for similar reasons held by the professor mentioned above, namely, that without the euro, Greece will be “alone” in an unstable geopolitical neighbourhood. This belief is held even though it is basically untrue: Greece’s membership in NATO, as well as its strategically important location as a geographical bridge between the East and West would make any conflict with Turkey or in the Balkans a matter of crucial importance for European countries regardless of whether Greece is in the euro. For others, the euro is a symbol of their European identity in the sense of being “Western” and “modern”, and exclusion from the currency union would, in their minds, undermine their sense of being “European.” But this raises the question: is this identity really worth the years of humiliation and economic depression that the country has experienced? Or more pointedly, who has decreed that the euro is essential for the possession of a European identity? The UK, Sweden, and Denmark are European despite not having the euro. The Swiss and Norway are not even in the EU, and yet both, by any reasonable standard, are “European”.

This bizarre mix of sentiments reflects a trait that is common in Southern Europe that fundamentally reflects a sense—sometimes unspoken, but nonetheless present—of inferiority vis-à-vis Europe’s “virtuous” countries; for others, it is indicative of the belief that Greece cannot become successful without being part of an ostensibly more advanced social aggregation like the EU. In this scheme, belonging to Europe is essential for the country’s relative status and prestige, two elements that are highly valued for individuals as well as for nations. But this belief runs against a basic fact: euro membership has coincided with their country’s relative decline even as it has strengthened Germany, with the consequences before our eyes: the bailouts, and the austerity conditions attached to them, all have the stamp of German preferences. Meanwhile, as was seen in the sorry spectacle of the parliamentary vote on July 15, legislators accept these Teutonic preferences even while they themselves claim to oppose them. Why? Because the alternative, they say, is ejection from the euro, with all the psychological consequences that are implied above.

 I had the privilege of speaking with someone who goes against the grain of Greece’s establishment, even though he himself is part of their socioeconomic class. Like many other Greek elites, he was educated at universities in the English speaking world (McGill and the University of Chicago), and is a professor of finance and banking. Unlike most elites, he voted No in the referendum on July 5^th. Importantly, he unambiguously favours Grexit, and this makes him an iconoclast, since favouring a return to the drachma is—unfortunately—associated with the extremist parties like the Golden Dawn. His views are coherent because they are devoid of the idealistic attachments, or the unrealistic geopolitical fears, that most others in the country express. For him, the euro is a matter of costs and benefits, and on this score, few would seriously challenge the assertion that it has been an unmitigated disaster for Greece. What made my interlocutor a breath of fresh air in Greece’s confused political climate is his belief that the transition from the euro to the drachma would not be the Armageddon that many predict would happen. Rather, with a bit of planning and good leadership, the change-over could happen in a matter of weeks, and any difficulties encountered in that period would be minor compared to the alternative of being shackled to the currency union. 

This raises the question: why don’t the majority of Greeks feel like him? My interlocutor’s responses were instructive. Many Greeks, he said, suffer from a minor form of Stockholm Syndrome, or Battered Wife Syndrome, both of which entail a pathological attachment to an entity that has harmed them. This is reinforced by the propaganda that they are exposed to on a daily basis. Most of the establishment is in favour of the euro, and their views dominate most of the major media outlets, on air and in print. Before the referendum, the media—which generally reflects the views of the country’s socioeconomic and cultural elites—was unanimous in their support of Yes and said that voting No would mean leaving the euro. It is remarkable that 60% of Greeks voted No despite this deluge of misinformation, but most made this choice because they believed that they were voting against austerity, not the euro. Had Greeks been presented with a different question, such as “Do you support Greece’s membership in the euro?” most would have likely voted yes for the reasons outlined above.

Thus for now, Greece will precariously remain a member of the euro if only because most Greeks want it. But this state of affairs cannot last. Other events—such as a new financial crisis, or a new government, or another referendum—will eventually transpire that make Greece’s euro membership hang in the balance. When one or several of these events occur, at a minimum the Greek government should have a “plan B” ready that would ease the transition to the drachma if the need arises. This would strengthen Greece’s hand considerably, because it would signal to its creditors that it will not stay in the euro at any cost, and it would send a message to Greeks that the government was prepared for any eventuality (both were lacking in the most recent tortured negotiations, where it was the Germans, and not Greeks, who had a plan for Grexit). It would also send a message to the Greek people that the government would do its outmost to protect whatever savings Greeks had in the banks, and would ensure that the country had a sufficient stock of goods, like fuel and medicines, during the transition.

But more important than government plans is the need for a shift in the mentality that allows Greeks to see the euro for what it is: a mechanism for fixed exchange rates that, like the gold standard, constrains monetary policy and ensures that units of value are the same for those countries that are part of the system. A corollary of this is the fact that the euro, as a mechanism of ensuring exchange-rate values, is not a necessary feature of European identity, which at any rate is an amorphous and subjective idea. Some might say that being excluded from the euro would mean being outside the EU, but this is questionable. Although there is no formal legal mechanism for leaving the euro while remaining a member of the EU, policy is ultimately determined by its most powerful members (the bailouts, it is worth recalling, also had no legal basis, and yet they happened because Europe’s leaders deemed them necessary). This means that if the will is present to keep Greece in the EU even though it reverts to the drachma, it will happen. And the evidence shows that the will is indeed there, as demonstrated by Wolfgang Schauble’s policy document released on July 12 that said Greece could have a “time out” from the euro while remaining a member of the EU.

To prepare themselves psychologically for Grexit, Greeks must also begin to have faith in themselves as a people with the talents to solve their problems. This means getting rid of the belief they are not capable without the help of outsiders and discarding the widely held notion that it will become a third-world country outside the euro. Yes, many members of Greece’s political class are corrupt, and yes, they will probably mismanage the transition back to the drachma. But is that much worse than the alternative of an interminable toxic cycle of crises, bailouts, austerity, and economic decline?