Opinion Sur
Greece’s exit from the Euro, from Europe, or from both is inevitable, though various options exist. The moment has come, to exercise sovereignty, even with few degrees of freedom.
Greek’s debt crisis has moved from severe to extreme. An extreme situation has, however, the virtue of simplifying things. For example, a severe medical crisis frequently carries with it the alternative: life or death. The alternative is simple and binary. But a country in an extreme economic crisis does not die; it becomes bankrupt and from there a new phase of its history begins. It is a state of exception in which he that takes a tough.
At present, the Greek government does not have any recourse to pay off its obligations, not just the internal ones—paying public salaries and pensions—but also the external—paying foreign debt with the accrued interest. To manage the situation, the creditors insist on the same leonine clauses under which they have already extended more loans. However, in Greece the postponing, deferring, delaying game can be played no more. Previous compliance with those demand (designed to save the lending banks) have drawn the Greek economy into a severe depression and the Greek people into desperation. Reforms have fallen squarely on the shoulders of the less fortunate and the less speedy (the middle class and the workers). It is to expect then, a Greek exit (now referred to as “Grexit”) out of the European single currency and a return to the old Drachma (a currency that is as old as the country), the emission and devaluation of which, added to a forced cut back in the total amount of debt, could put Greece on a new course to recovery. The Euro is like a straightjacket that forces Greece to do only an “internal devaluation,” which comes down to the acute impoverishment of its population. For an Argentinean this situation is like a movie she had seen and lived fourteen years ago.
In 1998, a prolonged recession began in Argentina. By that time, the President-in-office was finishing his second term and the country was preparing for a change in government. The new administration found out that its predecessor had left a huge fiscal deficit: 7.35 billion pesos —or dollars for that matter, since the “Convertibility Law” by which one peso equaled one US dollar was still in force. This was called the “one to one.”
The government adopted severe measures to steady the public finances. It harshly cut back public expenditure and inaugurated what is now called in Europe the “austerity measures.” At the same time, it requested a loan from the International Monetary Fund and private banks to reduce the external debt pressure.
But those measures and loans could not prevent the flight of bank deposits or the lessening of the external debt pressure. Popular unrest exploded against the restraints imposed by creditors in exchange for their “help.” Unemployment rose to 18% of the active population.
Confronted with this situation, economic minister Domingo Cavallo issued a decree restricting capital flight and limiting withdrawals from bank accounts to 1,200 pesos in weekly installments. This fiscal measure was called “the corralito” (or playpen, small enclosure) as it paralyzed the banks accounts (mainly from middle class depositors). Citizens’ life got disrupted, commerce was paralyzed, and, as if that wasn´t enough, the funds that could actually be withdrawn were worth three times less in dollars than before. In other words, the whole country became three times poorer overnight.
The Administration resigned amidst extensive protest, including violence. Their successors declared the default of debt payments and they derogated the convertibility law. Moreover, they confiscated and devaluated fix-term deposits. These new measures, together with the previous ones, were called the “corralón” (the bullpen or big enclosure).
Several Administrations followed in a succession of weak governments until the country was stabilized with the Kirchner Administration. The huge debt overhang was renegotiated under duress (this time for the creditors) and, given the favorable export conditions and different public policies, the economy grew and unemployment decreased. Eleven years later, many old debts had been paid off and new debt was issued tied to new growth, even though the country remained pretty isolated from the international flow of financial capital.
The handout of the powerful did not save Argentina. In just one decade, it suffered, it liberated itself, it lived with its own resources and it grew. Tomorrow changes and adjustments might come as well as new linkages with the world economy, but the lesson is clear. Although the price was high, default “worked.”
With Greece the parallels abound. For example, its subjection to the Euro, the European common currency, reproduces the Argentinean “one to one.” The swap of more austerity for help proposed by the IMF leads into the same alley the Argentineans once went through. The German stubbornness in disciplining the Greek people reproduces, in technocratic and pseudo-democratic terms, the authoritarian temptation to which Germans, Greeks, and Argentineans succumbed several times in their respective histories. And if there is a run on the Greek banks in the next weeks, we can expect first a Greek “corralito” and then a Greek “corralón.”
Now at the crossroads, Greece faces several courses it could take. In the election of the course, however, seldom can a country have the luxury of being rational and calm. Moreover, behind the first crossroad there are others as well. But it is not possible to continue the same way, and one way or another, Greece must abandon the Euro.
A country is forced to leave the “one to one” (whether single currency or currency board) if its government cannot meet its obligations, if its banks shut their doors, if its economy is depressed and if its political situation becomes turbulent. Greece is getting closer to that inflexion point. Its exit from the Euro zone can thus, become chaotic, as it happened with Argentina when it left the “one to one.” To reach a more rational decision, calm and time are needed, and for now neither of those exists. In their place, debtors and creditors have fallen into the gutter of mutual reproaches that each of them iterates in an increasingly louder tone, without listening to the other. That only stiffens their positions and leads to rupture.
Even if everybody avoided that accident, what alternatives does Greece have within the Euro zone? I believe only a few and not that good. I will list them, and it is up to the reader to ponder them The first one would be “more of the same” but a little more generous: a new rescue program from European “partners,” with the promise to significantly discount the debt after the application of the reforms they deem necessary. The other option could be to put an end to the current European policy of “postpone and pretend.” There will be a huge reduction in the debt but with no more help afterwards. The Greek government would keep the Euro as the currency, but with restrictions in its use and with a supplement of an emission of internal bonds, that would act as another quasi-currency. The Euro would become in fact a parallel currency within the country. Another path, which I consider probable, is to reach the collective conclusion by Greeks and Europeans, that there is no alternative for the Greeks but to get rid of the Euro and follow their own path. In this hypothesis, the rest of the Europeans would escort Greece to the exit gate. As a farewell present, the creditors would “condone” a huge part of the debt. It would be a respectful and elegant way out, instead of a precipitous and vituperative “Grexit.” Either way, sooner or later the exit will take place, and once done it will be irreversible.
What would be the neutral or positive aspects of Grexit? First, the economic “contagious” risk for other members of the Union would no longer be that high. Second, to face in-depth reforms Greece needs to win time and the exit would give her not only upheavals but also a respite. And third, as the Greek economy within the Euro has been less competitive, by recuperating the drachma and forcing a cut down in the debt (even in the toughest perspective, if Greece stops paying, no one will send it the gunboats), Greece would win time to put the house in order while its economy reactivates. On the other side of the balance sheet, the risks of an exit are as follows not only for the Greeks (the immediate phase after a default would be very tough on the population that has already suffered a lot) but for the rest of Europe. First, the Euro would no longer be the unique and unwavering currency and it would turn into a series of various “one to one.” It would be the worst possible scenario, something like a Domingo Cavallo’s Europe. The Union countries would have tied themselves with handcuffs (not police but monetary handcuffs) having thrown out the keys. And second, a Greek exit would have geopolitical consequences that neither the Europeans nor the Americans would find very pleasant. By falling off the Union, Greece would look for other alliances and lean back on blocs and powers less amicable to NATO. For Washington and Brussels it would be a strategic disaster. As well as for Berlin. With this, we arrive to the geopolitical core of the question.
Greece belongs to the Southeastern periphery of the European continent. When a country from the periphery is about to break away from the bloc to which it is tied—more so if that bloc is cracking—it faces several strategic options. The first one is to demand a loyalty reward: in exchange for remaining in the Western bloc it would receive assistance —precisely the kind of assistance given to Germany after World War II and that today Germany is denying to Greece. The second choice is receiving an award (in help and ease of terms) from its creditors in exchange for a brokerage role, as Turkey between Asia and the West plays it. The third option would be, always in exchange for perks, to turn itself into a neutral bumper against the aggressive Russia of Vladimir Putin. During the Cold War, that was the role played by Finland (another country that nowadays despises Greece but forgets its own past). The fourth option is a pendulum game between East and West, a sort of Third Position once advocated by Juan Domingo Peron. The fifth and last option is the more utopian one, that is: convincing the rest of the continent that Greece, cradle of the West, is as much or more European than the other Europeans, that it accepts its current values, and that it is such a loyal and trustworthy partner as the best of them. Regarding this last option, I will say that it is hard for me to imagine a Greek converted to the dour character of a German or a Finn.
Which of these options will the Greeks choose and, especially, under the current leading political party? I will limit myself to saying that even in their extreme situation the Greeks are not condemned to suffer other countries’ imposition or to follow just one recipe. When I used to visit Greece, I could appreciate the enthusiasm of their citizens by a word that comes from the bottom of history: ἐλευθερία (freedom).
Today, others want to lock Greece in a European dungeon. But they are dealing with a cosmopolitan shipping country. I had the opportunity to visit that country not as a tourist but as a marine apprentice, sailor, and captain. In every remote corner of the ´Greek archipelago I met common people that knew the ports of my (for them far away) country. The reason is also simple: for many years Greece managed the world’s biggest oil fleets, it had great ship-owners, captains, and sailors that travelled to the most dissimilar latitudes. And all this happened prior to the European Union. Nothing prevents Greece from resuming its traditional and global and marine calling in the future. This time, there should be an internal reconciliation, that is, the willingness of their ship-owners to invest in the country and not just keep their money abroad. A rapprochement with Turkey would make Greece part of a geopolitical bloc of intermediation. Her ports in the Aegean (that the Chinese are already starting to manage) would load the Russian oil in Greek ships to transport it anywhere in the world. And if an escort was needed, those from the navies of new emerging powers would provide it and not NATO ships. Will someone tell Mrs. Merkel this story? 2,500 years ago, when Athens was threatened by a powerful invasion, its leaders asked the oracle in Delphi for advice. The answer was cryptic, but the Athenians translated it in simple terms: “Go to the sea.” The Pythia predicted that a ’wooden wall’ (interpreted by the Athenians to mean their ships) would save them. The Athenians left the city, got on board their vessels, won the war in a great naval battle, and kept their dignity as a free people. Oh, I almost forgot: they did that for all of us too.
