Europe’s answer to the Greek crisis. Focus on banks or on citizens?

Article by Alina Bârgăoanu, director Convorbiri europene

The situation in Greece is so complex and it allows for so many viewpoints that selecting just a few of them is risky. I will take my chance and discuss the Grisis from three perspectives: “How did we get here?”; “Who is responsible?”; “Where is Europe?”. My analysis has little to do with the actual results of the Greek referendum, which does not mean that, symbolically speaking, these results are to be overlooked.

First, it is important to highlight how we have got here. History is much more intricate than what I am going to select here, but, in short, in October 2009 the new government in Athens revealed that Greece’s deficit was 12.7% of GDP, neither 6%, as the government had previously declared, nor 3.7%, the figure Athens committed to when joining the Eurozone, nor 3%, the level stipulated in the Stability and Growth Pact. These exposés sparked a war of declarations, whose consequences cut through our present days. The Greeks were urged to sell the Acropolis to pay off their debts, while Greek newspapers started hinting at war reparations that the Germans presumably owed the Greeks. Soon enough, Swastikas were displayed in public spaces in Athens. There came Angela Merkel’s now famous declaration, according to which each country, Greece being no exception, must deal with its own finances and save its own banks. This, according to G. Soros, increased the costs of future bail-outs exponentially and was the first step in the disintegration process.

The first bail-out for Greece was approved in May 2010. There is widespread consensus among specialists regarding this first bail-out: it was ill-designed, since it treated an insolvency crisis as a liquidity crisis. As a consequence, Greece was denied debt restructuring and debt reduction; instead, it was offered liquidity (loans) to pay off its debts. It is as if a patient with a haemorrhage is given transfusions, without minimal precautions to stop the haemorrhage first.

This is how the presentation and understanding of the events happening right under the eyes of the European leaders has evolved: “we do not have a problem Europe-wide”; “Greeks have a (liquidity) problem that they need to address on their own”; “Greeks need liquidity, and the support will be temporary”; “the loans to Greece will be paid back if the austerity measures and the reform program prescribed by the Troika are implemented”.

In 2012 there followed the second bail-out for Greece, which, among other things, forged a major shift in debt ownership: the debt predominantly owned by German and French banks would be owned (around 80%) by European institutions (ECB and the financial vehicles of the Eurozone governments) and the IMF.

In July 2015, PM Tsipras denounced the creditors’ conditions and called for a referendum to endorse or not these conditions. Following his announcement, the European Central Bank froze the Emergency Liquidity Assistance program, by means of which liquidity was feed into Greece. The sum under dispute between Greece and the Troika is around 7.3 billion euros. It may be larger – twice, three times larger. To put things in perspective, as the macroeconomist Andrew Watt advises, the ECB’s quantitative easing program allows it to buy 60 billion euros worth of governmental bonds every month. In other words, as Andrew Watt indicates, the sum which would have provided for Greece’s financial stability and for the creation of minimal conditions for economic recovery is spent by ECB every 10 days. And the 20 billion euros (almost triple the sum Greece needs) represent less than 2% of the value of the quantitative easing program over a period of 18 months. Where is the math here? Leaving aside considerations other than the strictly financial ones, where is the financial gain? Is it worthwhile for the Eurozone to face an earthquake and possible dissolution after Grexit, while the costs for avoiding the Grexit in the first place would be less than 2% of what the Eurozone has already decided to spend in order to continue to exist?

Second, let me go to the battle for interpretation. As I have already mentioned, the information on Greece’s deficit and debt, as well as the delayed response of the European leaders sparked a war of words: “The German grasshoppers paying for the lazy Greeks”, “the North the oppressor vs. the South the victim”, „the good-for-nothing lazy Southerners vs. the German Nazis”. What is worrying is the banality of these strong accusations, the easiness with which they are purported by both sides. Besides, there is an implied dichotomy between creditor and debtor countries, a dichotomy that has geographical underpinnings; as if incurring debt or, on the contrary, amassing wealth, reflects national traits, is a matter of culture or national identity. Only one step left until framing the whole discussion in race terms. Not to mention the fact that the dichotomy between creditors and debtors leaves no room for reflecting on the accountability of private creditors, those who so generously lent Greece and the whole South.

The referendum in Greece was only in part a battle over resources – who gets what, what are the losses, who incurs them. Rather, it was a battle over interpretation: what policies are considered to work and who is accountable. In terms of policies, this is a battle between austerity policies (that reflect the interests of the creditors, solely concerned with debt payment) and growth policies (that allow for both debt payment and economic recovery, including social recovery). The question “Who is responsible for a possible Grexit?” is a mere addendum to an older question: “Who is responsible for the Euro crisis?”. If we ask these questions only in the context of the Greek referendum, the possible answers are clear-cut: Greece vs. Troika, possibly Greeks vs. Germans. In a wider perspective, we deal with a much more dramatic conflict: between the advocates of EU integration and the so-called market Europeans – those who conceive of the EU as a huge market, a loose free trade zone.

If this defining conflict for the EU were won by market Europeans, this would discredit the whole endeavour of re-establishing the primacy of politics over finance, the primacy of political regulatory power over “unbridled [financial] markets” (the term belongs to the German philosopher J. Habermas). This would lead to a resurgence of “market fundamentalism” (J. Stiglitz’s term), meaning the blind belief in the so-called capacity of markets to regulate themselves. According to the German philosopher, the crisis had quite a surprising effect: “the financial crisis has reinforced national egoisms even further, but, strangely enough, it has not shaken the underlying neo-liberal convictions of the key players”.

From this perspective, the results of the Greek referendum are widely significant. A “Yes” vote would have put an end to the battle of interpretation, making creditors’ and market Europeans’ viewpoint a winner. The Greeks’ “No” keeps the battle alive.

Finally, where is the European Union in all this chaos? When did the EU turn into a construction based exclusively on the creditor-debtor relationship, as G. Soros underlined? Let me highlight one single fact. In previous situations, when Greece’s debt was owned predominantly by (German and French) banks, rescue mechanisms were put in place, for fear the financial “markets” become uneasy or nervous. Now, when Greece’s debt is owned by creditor countries in the Eurozone, Grexit is a loosely used term, while references to markets’ uneasiness are few. Instead, states and citizens alike are pitted against each other: Germany vs. Greece, German vs. Greek citizens. It keeps one wondering whether the European Union is run by creditor countries or simply by creditors.

Let me conclude by a quote from the reputed Stratfor analyst, George Friedman: “I do appreciate that the European Union was meant to be more than an arena for debtors and creditors. It was to be a moral arena in which the historical agony of European warfare was abolished. But while the idea that European peace depends on prosperity may be true, that prosperity has been lost. Economies rise and fall, and Europe’s have done neither in tandem. Some are big winners, like Germany, and many are losers, to a greater or lesser degree. If the creation of a peaceful European civilization rests on prosperity, as the founding EU document claims, Europe is in trouble”.


The Romanian version of this opinion article was published in Ziarul Financiar, on July 7, 2015. See the link

About the Author

Alina Bârgăoanu

Alina Bârgăoanu, profesor universitar Jean Monnet la SNSPA, decan al Facultăţii de Comunicare şi Relaţii Publice; Președinte al Consiliului de Administrație al Institutului European din România; cele mai recente lucrări: „Why Europe? Narratives and Counter-Narratives of European Integration” (2017, Peter Lang), „United by or Against Euroscepticism. An Assessment of Public Attitudes Towards the EU in the Context of the Crisis (2015, Cambridge Scholars); bursier Fulbright (2001- 2002).