Man, the Eurozone is a complete mess. Yep, it’s still trying to hash things out with Greece. Twice this week, there have almost been deals to basically kick the can down the road and proceed with the same completely not sufficient solution of bleeding Greece dry. Today, Germany quashed that agreement because…something something.
The actions of Germany during this whole fiasco both make some sense and make no sense at all. They make sense because concessions to Greece will likely mildly hurt Germany’s economy. Germany likes being on top. That’s understandable. But what they’re trying to force Greece to do is barbaric. Greece has already had its economy shrink by 25% because of the austerity forced upon them by the European Central Bank and its people are suffering horribly as a result. This is Weimar republic post World War I levels of shrinking that was forced upon Germany by the Allies. Germany and many other countries want to squeeze more blood out of that rock.
The sad thing is all of this could easily go away with just a little debt forgiveness. Greece is already making enough money cover its day to day costs. They just need to borrow money to service the interest on their debts. Keep the status quo and offer up some debt forgiveness and Greece would be in ok shape to grow back to a nominally functioning economy. But debt forgiveness is verboten in any discussion because how will they learn their lesson if they don’t suffer.
There’s also some weird politics going on here as well. Greece recently elected a solidly left government whereas the rest of the Eurozone is fairly center-right. Gotta keep the right happy or your government collapses and you lose power. And much like here in the U.S., staying in power is the first rule of business. So the right wants to stick it to the only left leaning government to show that a left government can’t function and the center goes along with it because they are somewhat of a same mind and want to keep control. And damn the consequences.
What are the consequences? Well, Greece would be stupid to accept more austerity. That doesn’t mean they won’t, but I don’t get the feeling the current government wants to go down that path both because they campaigned on less austerity and because it’s fairly obvious from the performance of other nations that austerity doesn’t work. It looks as if the Eurozone is not willing to budge either which means Greece leaves the Euro and defaults on its loans.
And now we come to completely uncharted territory. Greece leaving the Euro is likely to be devastating to Greece, but also pretty harmful to the rest of the Eurozone as well, leading to another European recession. Greece, its economy in shambles, will be unable to repay its debts by itself at a time when the Eurozone will demand it. This means a third party has an opportunity to step in and lend Greece assistance. Who can do this? Well, certainly not the Eurozone. The U.S. could and should do it, but I doubt we have the political will to do so. So that leaves China, which hasn’t shown much interest in meddling with European political affairs and Russia. Russia is currently fighting a proxy war in eastern Ukraine, has control of the Crimean Peninsula, and shows all outwards indicators of wanting to expand that influence. In exchange for money, Greece allows Russia to build naval bases thus giving Russia a base of operations in the Mediterranean Sea and locking its dominance of the Black Sea. If a far-right ultra-nationalist party comes to power in Greece as a result of these maneuvers, we have all the makings of a recipe for disaster. Greece could then decide to solve its border disputes with Turkey and Albania with a healthy backing of arms from Russia and the world has a second proxy war. Things can only escalate from there.
All because no one will agree to a little debt forgiveness.
