A new Greek euro-crisis ... but it will all work out
18 February, 2015
I remember writing about Greece's fortunes in 2010 and again in 2012. Both times, Greece was asking for help from its fellow Euro zone members, and they in turn were feeling miffed at having to bail out a country that wasn't even trying to help itself.
It seems that history is repeating as Greece again finds itself in the headlines, asking Germany to rethink the terms of the current bailout package, or risk Greece leaving the European Union.
Back in 2012, Greece's woes caused significant volatility in markets as impassioned negotiations continued for weeks.
I said at the time that the consequence of Greece not accepting the bailout package was not that significant in the scheme of things. Greece was, after all, a country representing just 0.5% of global GDP and it was hardly a mover and shaker in the Euro zone.
The bigger concern was the contagion effect. While Europe and the world could cope with Greece defaulting on its debt and leaving the Euro, a similar exit by other debt-laden members of the European Union would be felt more keenly.
If Spain or Italy were to default, the whole European Union would be shaken to its core and may have needed to be dismantled.
A bailout package was eventually agreed, obligating Greece to adopt austerity measures in exchange for some relief on its outstanding debt. The package expires this month, and given that Greece is still not in a position to repay its debt, negotiations are underway with the new Greek government to replace or extend the bailout plan to take some pressure off its citizens.
While the deal was referred to as a bailout, in practice it wasn't really. As the Greek finance minister said recently: "The bailout was not a bailout of Greece, it was a bailout of German and French banks. The German public was misled into thinking that this was money going to the Greeks; the Greek public was misled into thinking that this was our salvation."
The bailout money simply refinanced earlier debt; it didn't flow through to goods and services for struggling Greeks. So five years on, Greece is still suffering a deep recession and is still beholden to its Euro zone siblings to help sort its financial woes.
Negotiations on Greece's options might continue until the February 28 deadline and beyond.
We may therefore see more market volatility, just as we did in 2012, because the prospect of a Euro zone breakup is as scary now as it was then.
Most expect that an eleventh-hour deal will be cobbled together because Greece doesn't really want to go it alone and the rest of Europe, for all their grizzling, don't really want Greece to be banished.
Indeed while Greece is hogging the headlines, the argy-bargy isn't just about Greece. It's about the euro zone generally. Increasingly, the idea of bringing together disparate countries into a trade and political union is being questioned — how can it make sense for every country?
Germany and France question why they should help pay Greece's debts, and Greece doesn't want its fortunes dictated by Germany and France. Germany and the Netherlands must be wondering why they joined the Eurozone as their growth has slowed and the affluence of their citizens has diminished since then; whereas Sweden and Switzerland, and even the UK, who retained their own currencies, have maintained growth momentum.
For all the talk though, a break-up of the European Union does not look imminent. Even if it is an uneasy marriage, the parties seem keen to make it work.
As one British columnist said recently: "Sometimes it can be right to press on with something that, given your time again, you would never start in the first place".