Grexit, Zombies and Back to the Future

grexit

With the looming Greek deadline, it is interesting to revisit an interview conduced back in 2011 about the future of Greece as a member of the Eurozone. Not surprisingly, not much as changed since then aside from the perpetual rotation of Prime Ministers unable to balance the debt, european and international pressures, and domestic forces.

In almost five years, the EU, the Eurozone and Greece are in the same situation that they initially were. Today Greece is on the verge of defaulting on its debt of €1.5 billion to the IMF on June 30th. Since the election of Prime Minister Alexis Tsipras, the fight between Greece and the Troika+Germany has been tense with no real solution (read a previous analysis on Syriza here). The bargaining process has brought the EU and Greece in front of a wall. The only difference between 2011 and 2015 is the acceptance of the concept of Grexit. In 2011, Grexit was only a word to express the unthinkable. In 2015, Grexit is an option.

Here is the interview of Dr. Lorca-Susino taken place in Miami in 2011:

“What makes a currency unique? The symbols, monuments, leaders figuring on the paper money, are exemplifications of the collective identity and shared culture. In the case of the Euro, as underlined by Gideon Rachman, the symbols on Euro’s coins and bills are fictitious.

Last week [September 15th, 2011], I ask one of my close friends, Dr. Maria Lorca-Susino, and also co-worker at the EU Center of Excellence at the University of Miami to grant me a little of her time for an interview on the future of the Euro and its impacts on the EU as whole. The fraternity among Europeans living abroad is such that she could not refuse. Dr. Lorca-Susino has emerged as one of the top thinkers on the Euro and recently published an outstanding book, The Euro in the 21st century, from the ashes of her dissertation. I had in mind to do the interview à la Financial Times, unfortunately neither lunch nor coffee were part of it.

Zombies have become a very trendy concept to use in International Relations and mass culture [it was the case in 2011 with all the movies, tv-shows and Drezner’s book Theories of International Politics and Zombies], and I could not resist on using it for this piece. Is Greece a zombie? Can a bite from Greece lead to contagion to the other members of the Eurozone? and ultimately to the European Union as a whole? Could it lead to the comeback of national currencies? Would a default of Greece be like a heat shot to a zombie? These were my general questions throughout our discussion.

I started straight with a large, contentious and complex question, “How do you see the future of the Euro?” As a true academic, she replied by “it depends,” and then claimed that it will be “without Greece.” Greece has been at the heart of a massive political storm in Europe for several reasons: first, Greece is seen by the Troika – EU, IMF, ECB – as not doing enough; second, Greece could be considered as a failed-state. The problem with Greece is that the Greek government is unable to raise money [this changed in 2014 in Greece], as opposed to be unwilling to. Furthermore, from an economic standpoint, the case of Greece is a problem of solvency – no more assets – as opposed to have a problem of liquidity, which is the case of the Italy.

Dr. Lorca-Susino underlined that the Eurozone without Greece is not a “big problem” as the Treaties have been already breached many times. The no bailout rule has been breached, so why would it be a problem to remove Greece for the Eurozone? At that time, I should have raised the fact that one of the problems is perhaps not political, but instead unethical. But even the notion of ethics on the Greek fiasco lost its value a long time ago, when the Greek government cooked the books. The fact is that Greece lied and did not report the “real” data concerning its deficit and debt. The expulsion of Greece from the Eurozone is not a question of economic weakness, as argued by Dr. Lorca-Susino, but instead a consequence of its dishonesty to the other Member States. The cover-up by the Greek government did put the entire system in jeopardy, as she recalled, but also limited the time for action or reaction of the other Member States in dealing with such crisis.

I, then, wondered about the need to restructure, redesign the architecture of the Eurozone. She replied very simply that, “the Eurozone has all the requirements. But the only problem is that they have not been respected.” Originally and “in good faith” – as underlined several times throughout our discussion – Member States were allowed to maintain their fiscal autonomy. She went on and argued that the “unwritten rule for this fiscal independence” was because of a shared belief that Member States were part of a so-called “gentlemen club.” In other words, Member States’ words were the only guarantee needed for a stable and safe economic climax within the Eurozone. Short-term breaching was permitted, as it was the case with France and Germany, as long as Member States readjusted their deficits.

What about a common EU fiscal system? “Fiscal unity is complicated,” argued Dr. Lorca-Susino, “because it would send the entire European political class to unemployment.” Her vision of the role of politicians is reduced to their abilities to make the budget in accordance with the country’s needs. Fiscal unity is not a fiscal question, but instead a political one. However, another problem would be to design a common European taxation system with all its complexity around the question of redistribution in accordance with national taxation and European needs. Fiscal unity would ultimately lead toward a federal state along the lines of the United States.

But, what is the role of the European public in all that? Have European citizens been removed from the equation? Since the beginning of the crisis in 2008, the European public, all across the Union, has been extremely critical and vocal of all the austerity measures undertaken, especially the ones implemented in Greece, Spain, Italy, Britain, and to some extent France. A large segment of Europeans see the European Union as the supra-entity forcing national governments to cut their budgets and ultimately weakening the power of the welfare state. Her answer, once more, was sharp and clear, “the Euro is like Bush! Everybody blames it!” Her argument is that European citizens truly believe that life post-Euro was better. To some extent, the economic rationale is valid, monetary autonomy. Furthermore, national governments have used the Euro as a shield in order to push unpopular national economic policies without affecting the electability of its political class.

On the international stage, the Euro has been used as an instrument from diversion especially in the US. On the money market, the Euro is not seen anymore as a strong, stable currency leading investors in buying massive amount of Swiss Franc with all the consequences it entails for the Swiss authorities.

To conclude this piece, I would emphasize two points: first, the Euro is far from being perfect, however, it has become an European scapegoat. At least, Member States can agree on something; second, as argued by Dr. Lorca-Susino, “Greece is not buyable as a country, as an economy.” Greece looks like a zombie. One of the problems with zombies is the difficulty to find a vaccine. “

0,,18530052_303,00Putting this interview in perspective and as a concluding remark, one should mention the call by Prime Minister Tsipras to put the decision in the hands of the Greeks by holding a referendum on July 5th. This fascinating political move by Tsipras put the Greeks in the driver seat. Tsipras and his finance minister, Yanis Varoufakis, are opposed to the terms of the new bailout. For instance, in his public address on June 26th, PM Tsipras said “After five months of tough negotiations, our partners ended up with a proposal in the form of an ultimatum,” with “new, unbearable measures,” which would force for additional cuts to pensions, salaries and tax increases. He added that “the goal of some of Greece’s partners is the humiliation of an entire nation.” It is the first time since the beginning of the eurozone crisis that a government is asking directly its citizenry to make a choice on their future.

In order to do so Tsipras had asked to his creditors and the Eurogroup to give a 5 days extension. The next day, June 27th, the finance ministers of the Eurogroup rejected Tsipras’ demand. Jeroen Dijsselbloem, the leader of the Eurogroup of eurozone finance ministers, told a news conference that “The Greek government has broken off the process. However regrettable, the program will expire on Tuesday night.” Ultimately, Greece seems on the verge to leave the Euro. A Grexit is now a reality.

This piece was initially published on Foreign Policy Association’s Blog on September 23rd, 2011 under the title of “Euro, Zombies, and Greece: A Discussion with Dr. Lorca-Susino”
(Copyright 2015 by Politipond. All Rights Reserved. This material may not be published, broadcast, rewritten or redistributed without permission).
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