Economic Cooperation

Democarcy vs. Macroeconomics and the Problematic Legacy of European Integration

July 9th 2015 - by Dr. Elena Pnevmonidou, University of Victoria

About to reach what began to look like the hoped-for successful renegotiation of the bailout deal, Greek Prime Minister Alexis Tsipras suddenly announced on June 26 that he would hold a referendum and recommended that the Greek voters reject the new terms of the bailout set out by the Eurogroup and the IMF. Since that unexpected turn, events have unfolded at a breathtaking pace and in an at times absurd fashion. By calling for a referendum, Tsipras abruptly broke off negotiations and prompted the angered Eurogroup to withdraw the proposed renegotiated bailout from the table. Yet Greece went ahead with the referendum. A solid majority of 61% voted to reject what was on July 5 already a null-and-void deal. The referendum clearly legitimated Tispras’ approach to the Greek debt crisis, but it also widened the rift between Greece and its creditors and made future negotiations about a bailout or debt restructuring that much more difficult and complex. The conciliatory gesture of replacing the controversial Finance Minister Yannis Varoufakis with the softer spoken Euclid Tsakalotos was dismissed as too little too late by Greece’s creditors while drawing the ire of many Greeks among whom Varoufakis is a popular and celebrated hero.

After some futile attempts to reopen communication, calls for new proposals and failure – or refusal – to deliver such, Greece under the leadership of Tsipras is now facing what to all appearances is the final ultimatum: Deliver an acceptable proposal in time for the emergency summit of European leaders this Sunday – or else face the Grexit, the exit of Greece from the Eurozone.

As we find ourselves in the proverbial quiet before the storm, this is a good moment to take stock of some key developments and core themes that have emerged thus far and to offer commentary and clarification about some of the narratives that are circulating about the Greek crisis.


Alexis Tsipras and His Government

There is a fundamental disconnect in how Tsipras is portrayed in the mainstream Northern European and North American media and what his supporters in the Greek public and media see in him. Greece’s creditors would have preferred to continue negotiating with representatives of the established political parties, that is, the social democratic Pasok or the right-of-centre New Democrats. More often than not, mainstream media outside of Greece as well as the Eurogroup and IMF representatives belittle Tispras, Varoufakis and the Syriza party in general as a group of politically inexperienced street radicals with a naïve understanding of macroeconomic matters and irresponsible, not to say childish expectations and demands for debt-relief without austerity.

Without any doubt, these past few weeks Northern European leaders must have repeatedly asked themselves about Tsipras, confounded by his seeming self-sabotaging strategies, “Is this guy for real?” Yet what his Greek supporters see and celebrate in Tispras is precisely the realness and sheer authenticity of someone who embodies their very own predicament as they struggle to survive against all odds. It is in fact the mainstream parties who are viewed as irrelevant, insincere (hence ‘unreal’), in league with Greek and European elites and detached from the predicament and struggles of regular Greek citizens. Whereas the Eurogroup as well as the mainstream Greek parties are rejected for what to most Greeks is a very obvious democratic deficit, Tispras is viewed as being fully legitimated by the Greek people. Unlike other G-20 governments, so say some voices in the Greek media, Tsipras’ government does not need to barricade itself from its people: The parliament’s doors are wide open, and Tispras walks the streets freely without a security detail, without fear from the Greek public – and this despite years of harsh austerity, the lineups of shame at the ATMs, as they are called, and the very real likelihood of more hardship to come.

While the Greek debt crisis looms larger than ever, Greek democracy could not be more vibrant at the moment.

As we wait to see how events unfold between now and Sunday, it is absolutely crucial that we do not underestimate the significance of this democratic renewal of Greece. For to some – and not only in Greece – the current clash between Greece and its creditors is symptomatic of a broader, more fundamental problem: How does one safeguard national democratic institutions from global, macroeconomic forces? To what extent should banks and international lending mechanisms be permitted to intrude into national democracies and thereby to transform the very fabric of cultures and societies? How does one reconcile local civil society with a globalized economy?

Causes of the Greek Debt Crisis

For indeed the current Greek debt crisis was not caused by Greece alone. To be sure, with decades of mismanagement, government corruption, widespread tax evasion and reliance on a generous social system, Greece certainly bears a significant responsibility for its massive debt. It has also been known for years that Greece was only able to enter the Eurozone in 2001 by misrepresenting its financial situation and concealing what was already then a looming debt crisis.

But it is equally important to recognize that Greece’s main adviser in its creative accounting was Goldman Sachs, the controversial American multinational banking and investment firm that played such a crucial contributing role in the subprime lending crisis that plunged the USA into a recession in 2007-2009 and that also had an impact in Europe and elsewhere. As is now well known, Goldman Sachs helped Greece mask the extent and nature of its national debt for nearly a decade before the crisis became apparent.

The Greek debt crisis was thus caused by a perfect storm of domestic structural problems, corrupt governments as well as reckless lending behaviour of global actors.

While in the short term rescuing Greece from defaulting, the first bailout of 2010 launched by the so called Troika (the European Commission, the European Central Bank and the IMF) only deepened the debt crisis by handing Greece a €110 billion loan on the condition that it implement various austerity, privatization and structural reform measures. As we now know, and as the IMF recognized as early as 2011, the bailout was predicated on a gross economic miscalculation: Since the Greek economy had (seemingly) been experiencing consistent growth over the previous years, the (mis-)calculation was that structural reform and austerity measures would have no negative impact on employment figures and economic growth. The forecast economic growth was supposed to compensate for the increased debt.

Instead, as is often the case with IMF-imposed austerity, the bailout had a crippling impact on Greek society by causing a dramatic rise in unemployment and by bringing economic growth to a grinding halt. Within less than two years Greece was once more on the brink of bankruptcy.

Yet although the first bailout evidently failed because it was premised on a flawed economic model, the second bailout only further entrenched this very same, flawed model: On the condition of even deeper restructuring and austerity, Greece was handed another massive €130 billion loan, raising its bailout debt to a whapping nearly quarter trillion Euro.

In an effort to give some democratic legitimation to this problematic bailout deal, the then Prime Minister Georgios Papandreou, called for a referendum. However, pressured by EU leaders, Papandreou called off the referendum and resigned in order to give way to a new unity government that readily accepted the new bailout without engaging the Greek public in this decision – thereby triggering riots and civil unrest and generally forfeiting the trust of the Greek citizens.

In addition to bringing into stark relief the Troika’s own flawed economic forecasting and irresponsible lending behaviour, the second bailout thus also revealed a profound democratic deficit on the part of EU leaders who, at least from the point of view of the citizens in Greece, seemed to presumptuously intrude in domestic matters to the point of deposing and installing Greek governments at will.

The Syriza Phenomenon and the Significance of the Referendum

The surprising success of the Syriza party who achieved a landslide victory just shy of an absolute majority in the snap 2015 election can only be understood against this backdrop: No amount of austerity and restructuring will ever put Greece in a position to repay its debt. As was already apparent with the first bailout, and as increasingly more economists recognize, the current European lending model has failed. A fundamental restructuring of the European lending system is urgently needed. In light of the failure of the two bailouts and their devastating social cost, to insist on more of the same – more bailout debt and more austerity – can only be perceived by the Greek population as gratuitously punitive and irresponsible economic behaviour on the part of the Eurogroup. Another bailout, that is, more of the same, will only deepen the Greek crisis, which is ultimately Europe’s crisis. Perhaps what is least needed is yet another purely macroeconomic solution, and what is perhaps most needed is a political, a democratic intervention.

To people in Greece, Syriza represents that democratic intervention. Being a coalition of the New Left that emerged from the anti-globalization movement, the Syriza party has enabled Greek society to break out of the obsolete binary of the established parties, Pasok and the New Democrats, who in spite of their different ideological positions are both equally blamed for the current debt crisis and are both considered to be equally out of touch with Greek civil society. To its supporters in Greece, the Syriza thus represents the potential for genuine democratic renewal. And at the moment the party under the leadership of Alexis Tsipras also enjoys its citizens trust that it will make good on the promise, implied in its name, to weed out the corrupt Greek system by installing competent ministers, ending nepotism and prosecuting tax evaders – as well as, also, to find a new, sustainable solution to the debt crisis.

Whether the Syriza can make good on its promise will remain to be seen. The referendum certainly was a bold move that validated the yearning of the Greek citizens for some participation in shaping the fate of their nation, even if that fate includes a potential exit from the Eurozone.

Instead of dismissing the Syriza as a bunch of anti-establishment street radicals without a credible platform, and instead of dismissing the refusal of the Greek people to be submitted to more austerity as the temper tantrum of a child who refuses to shape up, European leaders as they prepare to consider whatever proposal is presented them on Sunday, would do well to take seriously the Greek citizens’ yearning for democratic participation: While a continuation of the same lending model will only further erode the economic stability and, with it, cohesion of the European Union, collaborating constructively with Alexis Tsipras and taking seriously the significance of the Syriza phenomenon in Greece may harbor the potential for strengthened solidarity and democratic renewal of all of Europe. 


Cartoon by Michael Kountouris