Speeches given by competent German authorities, particularly last week, have begun to provide revealing signs regarding the option of a “eurozone without Greece,” now on the agenda of the EU.
For months, Greek public bonds have had “junk” status. In other words, they are “non-investment-grade.” This means none of the market actors want to lend to Athens. Greece, in order to convert its debts, was thereby in need of a second bailout package, amounting to 130 billion euros, which the EU recently approved. If the bailout did not proceed or the first tranche was not released by the first days of March, there would have been no other alternative for Athens but bankruptcy.
Greek Finance Minister Venizelos and technocrat Prime Minister Lucas Papademos therefore tried to convince the tough eurozone members -- Germany, Holland and Finland -- while also intending to win the support of left and right-wing Greek representatives -- namely, the New Democracy and PASOK parties -- to implement the harsh austerity measures properly.
Greek nightmare: German veto
The coalition headed by Germany no longer trusts Greece. On Greece having failed to make the required commitments to reform, the coalition demands that strict measures be taken and given lasting legal guarantees. Even Germany requested appointing a European Union “budget commissioner” to control the Greek budget and proposed a draft concerning this issue.
It is obvious that Berlin has lost its patience with Athens. More than that, the project of a “eurozone without Greece” is becoming a more acceptable scenario for Germans with every passing day. Statements by German Finance Minister Wolfgang Schäuble that “Europe is better prepared for a Greek default than two years ago” and by his Greek counterpart, Venizelos, that “there are many in the eurozone who don't want [Greece] any more” illustrate that the genie is out of the bottle.
Until a year ago, to propose a “eurozone without Greece” was taboo. Both European leaders and the European Commission as a monolithic bloc made clear that no member should be allowed into bankruptcy. However, due to the failure of the first bailout package given to Greece to solve its problem, the implementation of austerity measures by Greek politicians not meeting EU and International Monetary Fund (IMF) demands and the necessity for a second bailout package of 130 billion euros pave the way for a shift in balances.
Critical psychological threshold
The point we are at now is that Greece may not be able to stay in the eurozone, and even with the second credit tranche, the Greek problem will remain. The underlying reason for this is the structural problems of southern members in the single currency bloc, such as not being able to compete properly and for that reason having chronic current account deficits. That is why countries like Germany began to see Greece as an obstacle to European integration. Furthermore, the German people started to question the financing of irresponsible Greeks with their taxes. Support for a second bailout program was at less than 25 percent.
As a result, Greece is in a position wherein it has lost almost all the support of the main actors of the EU. Not only EU politicians but European Commission representatives, too, began to think that rather than ponder about “how Greece can be saved,” it is a more favorable strategy to focus on taking the least risk and expelling Greece from the eurozone. This paradigm shift reveals that a critical psychological threshold in the Greek problem was overcome. And this is what really scares the Greeks.
*This article was previously published in Todays Zaman on 4 March 2012.