Jason OMahony - Irish political blogger, Irish politics, EU politics
 

When Greece left the Euro.

Posted by Jason O on Feb 21, 2015 in European Union |

In the end, it came down to that much ballyhooed phrase, “national sovereignty”. For all the technical arguments between the Syriza government and its EU partners, the Greeks needed money and the rest of Europe didn’t believe it would get it back. After months of negotiations and little progress, the crisis in Athens forced the Tsipras; government’s hand. All the promises of restoring public sector employment and early retirement and spending to the old pre-crisis PASOK/New Democracy levels needed money, and Greece didn’t have it. What little money it had was going on barely keeping the creaking state going and paying the interest on eye-watering debts. Something had to give.

The South American option, default and devaluation, and with it a return to the Drachma, was the final tool in the box, and with angry crowds losing patience on the streets, and the fascist Golden Dawn now in second place in the polls, the decision was made. Greece was leaving the Euro.

The army sealed the borders as vehicles were searched to prevent the export of savings. Capital and withdrawal controls were introduced instantly, and the mint began printing the old notes once again. A swathe of new laws made it a criminal offence to keep large amounts of euros.

On the issue of debt, Prime Minister Tsipras and his finance minister found themselves battling the left of the coalition over the size of the default. Tsipras wanted to haircut the debt to a manageable level, but then promptly pay the new interest debt, believing it to be vital to eventually permit Greece to re-enter the bond markets at a future date. In particular, he wanted the government to focus on defaulting on other state debts. The communists in the government were outraged at any debt remaining, with some leaving the government immediately. But Tsipras got his way, and when Greece defaulted it maintained over half of its debt.

Devaluation sent imports, especially food and energy soaring in cost, with the government then having to subsidise both for a growing part of the population, eating again into state revenue. The tax system, which was now beginning to function in a more efficient manner, was slowly increasing tax revenue, especially on wealthy Greeks, but as every country has learnt, it had its problems. Ordinary Greeks took to the streets objecting to having to pay higher taxes alongside soaring imported goods prices caused by a feeble Drachma.  It wasn’t long before “Traitors!” was being sprayed on Syriza posters, and the prime minister and his finance minister were being jostled in public.

The government focussed on taking advantage of the weak Drachma to transform Greece into THE value destination for European tourism. Money was invested in tourist facilities, and Euro controls were loosened to permit hotels and resorts to source the supplies they needed. Across the EU, anti-EU parties started advocating Eurosceptics holiday in Greece, and the image of Nigel Farage puffing on a cigar on a Greek beach surrounded by buxom Greek women became iconic.

The government did find itself having to make awkward decisions. As tourism started to recover, the tourism industry warned the government that large numbers of people begging were beginning to swamp the resorts on the basis that tourists had money, leading to Syriza having to deploy police (and in some cases soldiers) to form checkpoints and clear the streets, a scene that did not go down well in left wing circles across Europe, nor in Greece, causing Syriza to lose its parliamentary majority.

Although the devaluation did lead to a modest recovery in employment in the tourist industry, the failure of the government to keep its promises on the public sector and spending meant that it was now being attacked on the left by communists and former Syriza members and the right by New Democracy and fascists.  The devaluation had now brought new problems with inflation soaring and the Bank of Greece aware that raising interest rates would not really help given the source of inflation. Tsipras and Varoufakis barely managed to block a proposal to get the central bank to just print more money.

A savage attack on a group of German tourists, killing two and injuring five, by supporters of Golden Dawn did not help the tourism led recovery, unleashing stories across Europe of muggings and begging and seriously dampening demand for Greek holidays with northern Europeans. The Greek tourist minister’s promise to put troops on the streets to protect  tourists became a spectacular own goal.

The government was faced with a dilemma. The only way out of its downward spiral was economic growth. The problem was that the actions needed to trigger that growth, including market and labour deregulation and lower taxation, were pretty much the exact opposite of what Syriza had been elected to do. Greek exports to the rest of Europe were growing as a result of devaluation, but the country was simply not producing enough export income to fund the social welfare system it wanted. Instead, it wanted the welfare system first. More Greeks were in employment now, but the soaring cost of living was making their standard of living worse than under the Troika. It was becoming a common joke that the Euro was still the de facto currency in Greece, with large purchases having an official Drachma price, and an under the table Euro price. Families kept Euros under the bed for a rainy day, despite the law.

Devaluation was also resulting in higher raw material costs, which began to feed through into export prices, making them less competitive.

Golden Dawn rallies attacked the government for not cracking down on immigration, and racial attacks were becoming more widespread, with the under-resourced police either stretched beyond capacity or in some cases sympathetic to Golden Dawn.

With no majority, and paralysed, the Syriza government called an election, with polls putting it in fourth place behind the Communists, New Democracy and Golden Dawn, all vying for top spot. The European Council, which had already suspended Greek voting rights after the Syriza government had unilaterally defaulted, warned that if Golden Dawn formed the next Greek government, the option of the expulsion of Greece from the EU would have to be considered.

On election night, Golden Dawn narrowly defeated New Democracy and won a majority. In his victory speech, the incoming prime minister announced that he had already negotiated a deal with Russia to build a massive Russian naval base. That night, 42 illegal immigrants were killed by fascist gangs, in some cases in plain sight of police. The Kremlin offered to send Russian police to assist in the maintaining of law and order.

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