Angela Merkel is no friend of a stable European Union
Recently I have come across a number of people whom are supportive of Corbyn in the UK whilst being sympathetic towards Angela Merkel. It is understandable where such sentiment comes from: it was a Merkel led government that abolished tuition fees, introduced the minimum wage, let in over 1 million refugees, abolished tuition fees and has worked to phase out nuclear power. However, whilst on the face of it a progressive, her stance on Greece makes her, perhaps, a greater threat to the European Union than Brexit.
Following the start of the global financial crisis, during 2009, as banks increasingly realised that many of the loans they had provided could not be be paid back, governments stepped in to prevent them collapsing. Here the lenders of capital were being bailed because they could not recoup the money which they lent. This is what one might logically expect to happen: if a business went bankrupt, you would not expect them to be able to pay back the loan they took out. Whilst frustrating for banks, such eventualities are common occurrences and banks tend to plan for such occasions in their financial models by charging higher rates on risky loans.
By 2010, suddenly it wasn’t the lenders of capital being bailed out, it was the states that had borrowed from them. Having borrowed substantial sums of money leading up to the financial crisis, due to the low interest rates they had gained access to upon joining the Eurozone, Greece were already in a substantial debt before the crisis hit. However, following the revelation from their newly elected Prime Minister, George Papandreou, that their debt was larger than first thought, the interest rates on its loans skyrocketed making them impossible to repay. In this situation, one might expect Greece to declare bankruptcy (that they are unable to repay their debts) like any sensible business would, letting their debt burden fall on the shoulders of the banks that had lent them the money. However, as those banks happened to mainly reside in France and Germany, the leaders of these countries were determined to prevent that happening: a Greek default would force them to bailout their own banks.
For Germany, a bailout of their banks would have forced them into massive Austerity. Whilst for countries with their own central banks, such as the UK and the USA, Austerity is a political choice, for those indebted in the Eurozone, Austerity is nonnegotiable. Indebted countries in the Eurozone do not have the ability to devalue their currency to make their exports more competitive abroad and are bound by the Stability and Growth pact which limits annual deficits to 3% of GDP and total debt to 60% of GDP at threat of sanctions. Without the ability to devalue or borrow to invest, Austerity is the only option left.
If Merkel had bailed out her banks, she would have condemned her country to years of Austerity and have destroyed her political career, particularly after having portrayed herself as the fiscally prudent Chancellor. To avoid this damage, she helped engineer a way to prevent Greece going bankrupt. However, as her electorate were diametrically opposed to giving money to a country deemed to be profligate, Merkel made sure that the ‘bailout’ of Greece was a loan, not a gift, and came with demands for severe Austerity.
Naturally, when one provides a ‘bailout’ loan to a country unable to repay its debts, and simultaneously forces it to cut jobs and raise taxes, to enable it to ‘pretend’ to be solvent, a second ‘bailout’ will only be a matter of time. So far Greece have received three such ‘bailouts’ and are likely to receive a forth in 2018. The only way to end the pain in Greece is to reduce their debt; this would reduce the amount of interest they paid on their remaining loans, enabling them to eventually recover. However, having told her country that they would get their money back, Merkel is fully opposed to any consideration of such ‘debt relief’. As a result, Greece are likely to continue to suffer the pain of Austerity for the foreseeable future.
Unlike people in the UK, the Greeks see little hope of a more positive, egalitarian future. Their present government is led by SYRIZA whom came into office offering an end to Austerity however after 6 months in power, they capitulated to the pressure placed on them and began to implement the agenda they once swore to oppose. This capitulation has had severe consequences politically and has fuelled the far-right, openly Nazi, Golden Dawn party whom are steadily gaining popularity. If action is not taken on Greece’s debt, there is a strong possibility of them gaining power and if this happens, Europe, not just Greece, would be in severe danger. In particular, with regaining control of Cyprus one of Golden Dawn’s top priorities, a war in the European Union would not be out of the question.
Acknowledgements to Yanis Varoufakis whose book ‘Adults in the room’ (2017) has been a big inspiration for this article.