End The Pretend

15 March 2015

The widespread assumption that Greece will never exit the Eurozone is based on an increasingly shaky analytical foundation. While both sides may well understand that they have more to lose from a “Grexit” than from keeping the status quo, the negotiations have taken a very dangerous, wild-card turn. Syriza has rashly ignited populist fires that neither side may ultimately be able to contain. Grexit is actually very likely to occur now unless EU leaders admit that the country needs bankruptcy reorganization instead of more so-called “loans”, and unless they forthrightly explain to their electorates why an orderly in-house bankruptcy is preferable to the alternatives.

At this stage it should be clear to any observer that Greece is seeking far more than marginal repayment adjustments and an increased flow of the off-the-books ECB “liquidity assistance” that has been keeping the country afloat. Its Finance Minister has remarkably declared that the country is bankrupt, but EU leaders have insisted on pretending otherwise. They need to tack quickly, because winks and backdoor cash are unlikely to buy much more time. Syriza has recklessly inflamed the EU masses in its inept attempts to generate negotiating leverage, renewing unpredictable historical grievances.

In response to the EU’s steadfast refusal to move outside of the established negotiating paradigm, Syriza intentionally began setting populist fires on all fronts. Its Finance Minister not only had himself filmed proclaiming that Greece’s debts will never actually be repaid, he indicated that the entire “bailout” structure is a charade that EU leaders created in order to deceive their own populations. Lest anyone miss his very unsubtle points, he flatly repudiated the legitimacy of Greece’s existing debts by describing the loans from which they derive as “crimes against humanity”. Astoundingly, Prime Minister Tsipras followed up on that performance by asserting, in the most vitriolic of terms, a litany of reparation claims against Germany dating back to World War I! 

Those ministerial acts were not the excusable mistakes of immature politicians, they were carefully choreographed moves designed to spray as much fuel as possible over already red-hot coals. Syriza is no longer discussing “bailout” terms with its creditors; it is portraying Greece as a long-suffering victim whose present insolvency is the result of prior German rapaciousness and EU frauds. It has justified its demands for debt writeoffs by equating them with debt concessions given to Germany after World War II. The EU’s carefully-protected negotiating boundaries have now not only been crossed, they’ve been smashed.  

All attempts to get Greece’s government to conform to quiet diplomatic norms and recognize EU members’ political and economic constraints have been met with derision and intensified public provocations. Syriza’s relentless acts of defiance leave no doubt that it is determined to destroy the entire “bailout” scheme and replace it with a completely new arrangement that includes explicit debt writeoffs and unconditional cash transfers.  As loathsome as those concepts are to EU leaders, denying that they remain Syriza’s steadfast goals is no longer an option. 

The EU’s favored extend-and-pretend response is the worst possible way to address the present crisis, because it's begun to tear apart the political underpinnings that are the entire reason for the EU. That approach has already created severe rifts among member states. If EU leaders really believe that it is better to keep Greece in the Eurozone than to let it exit, default, and devalue, they’re going to have to face reality and allow the country a bankruptcy-style restructuring. If they don’t really believe the best option is to keep Greece in, they need to let it go before more damage is done to the EU and their credibility.  Under any circumstances they need to actually make the difficult decisions, not continue to avoid doing so.  

Unfortunately, EU leaders no longer have the ability to decide behind closed doors what price they’ll pay to keep Greece in the fold. As a result of Syriza’s extraordinary incitements they’re now going to need the consent of their governed, many of whom are highly interested and reasonably believe they’ve been misled by both EU and Greek leaders. Nothing less than an honest disclosure of Greece’s finances and thoughtful explanations of the strategic and systemic reasons for keeping the country in the union will suffice. There is no way EU taxpayers will accept more condescending lies, especially when the Greeks themselves are exposing them. Uncommonly bold and courageous EU leadership is going to be needed in order to prevent a Grexit, no matter how much politicians on both sides profess to want to avoid that outcome.  


© 2015 F. Emmett Fitzpatrick, III.  All rights reserved.

F. Emmett Fitzpatrick, III is an attorney, author, and longtime observer of Europe, based in the suburbs of Philadelphia, Pennsylvania, USA. On occasion he uses this space to comment on matters of particular interest.  

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