The Cost of Keeping Greece in the Eurozone: Was it really worth it?

By Jacob L. Shapiro* – Geopolitical Futures
A Grexit is finally here. Only it’s not the one that kept many of us up at night for years. Greece isn’t leaving the eurozone; it’s leaving the last of the three major emergency loan programs that allowed it to remain in the eurozone in the first place.
We have Citigroup to thank for the entrance of Grexit into common parlance. In February 2012, analysts there gave it even odds that Greece would leave the eurozone. (We can therefore hold Citigroup accountable for “Brexit,” “Italexit” and all the other ear-grating portmanteaus that have followed.)

A little over three years later, the world watched Greek voters reject a joint bailout package from the European Commission, the International Monetary Fund and the European Central Bank – only to have their prime minister, Alexis Tsipras, agree to an even harsher package eight days later. In February 2017, Grexit once again seemed nigh, as the Greek government balked at IMF demands for more pension cuts and tax increases. The melodrama continued off and on until July, when the IMF at last relented.
In each case, Grexit was averted, and the integrity of the eurozone was preserved. But it came at a cost. In 2008, Greece had a gross domestic product of $354 billion. By 2017, its GDP had shrunk by 44 percent. According to the IMF, only four countries’ national economies have shrunk more in the past decade: Yemen, Libya, Venezuela and Equatorial Guinea. That’s not exactly the company one wants to keep when it comes to economic success. As of the first quarter of 2018, Greece’s debt-to-GDP ratio was 180 percent. Of that debt, 146 percent was in the form of loans. (For comparison, the EU average for that figure is 11.6 percent.) According to Greece’s Public Debt Management Agency, Greece will be paying off roughly $300 billion of debt until 2060.
The European Commission believes this is cause for celebration. Its official press release salutes the strength and determination of the Greek people while insisting that “Europe will continue to stand by Greece’s side.” Greek leaders have a more sober view of the milestone. Tsipras plans to address the Greek people on Tuesday – but there will be no public celebrations in Athens, nor announcement of new relief measures for Greek pensioners whose monthly payments will decline as much as 18 percent starting on Jan. 1, or to the roughly 900,000 Greeks currently without jobs. The European Commission says Greece will now be “treated like any other Europe area country.” But Greeks will remember all too well the years in which they weren’t.
And so a tough question must be asked: Was it all really worth it? Maybe this is the wrong question, since neither side had much of a choice. It’s easy to demonize Germany, the power behind the power in Brussels, for forcing austerity on Greece, but it’s hard to think any government in a similar situation would have behaved differently. No German government could have taken a more altruistic stand toward Athens’ debts and survived; German taxpayers did not want to foot Greece’s bill even if some of it was incurred by greasing Germany’s export machine. Likewise, it’s easy to demonize Tsipras for going against the will of his people, but Tsipras was torn between betraying his own principles, doing what was best for his people, and obeying the demands of Greece’s creditors. (As an aside, it’s ironic that Greek voters felt far more strongly about rejecting a bailout in 2015 than British citizens did in their own referendum on EU membership.)
But if it’s the right question, it is tempting to answer in the affirmative. The Greek economy began to grow again in 2017 by 1.4 percent. Greek pensioners will receive less money than they once did, but they will at least receive something. Greek unemployment, while still high at 20 percent, has been slowly dropping from its peak of nearly 30 percent in 2013. For the hundreds of millions who either believe in or appreciate the benefits of the European project, Greece’s rescue is a rare moment of vindication. The eurozone was brought to the brink, but it went no further. Perhaps it’s even the high-water mark of euroskepticism, one that could set a precedent for other highly leveraged European economies to follow.
Maybe this optimism will be proved right in the long run, though it is hard to see how. Greece was not just rescued by Brussels. It was forced into submission by Brussels. The eurozone could not afford to lose Greece, but neither could it afford to treat Greece like a full member of a real European union. If it had, then taxpayers in Germany, Italy and Spain would have been on the hook for Greece’s debts too. Thus is the inherent contradiction of the eurozone, and, more broadly, of the European Union. Brussels demands unity, but when tough decisions armade, it’s not the citizens of the eurozone who lose their pensions. In this case, it was the citizens of Greece. Greece’s crisis was not considered a European crisis – it was treated as a Greek problem that had to be quarantined.
The European Union’s stated purpose is “to share a peaceful future based on common values.” It is an exceedingly noble and fragile purpose – noble because peace is a virtuous end, and fragile because modern European history has been defined not by peace, but by centuries of internecine, genocidal and destructive conflicts. It is a purpose that some might argue is worth fighting and even sacrificing for. But when I second-guess my own pessimism about the long-term viability of the EU as a political project, I ask myself the question, “What would Europeans sacrifice to preserve the EU?” Today, it seems to me, the answer is that Europe sacrificed Greece. That is not a cause for celebration. It is the heroic delusion laid uncomfortably bare.
*Jacob L. Shapiro is a geopolitical analyst who explains and predicts global trends. He is the director of analysis for Geopolitical Futures, a position he has held since the company’s founding in 2015.