Spectre of 'Grexit' will return to haunt Europe

LONDON • The Greek Parliament is likely to approve today a package of laws demanded by the European Union as a precondition for negotiating a new €85 billion (S$127.5 billion) credit package designed to avert the country's bankruptcy.

However, it is difficult to see how this new bailout plan with its draconian political conditions can revive the moribund Greek economy; at best, Europe has bought itself a year's respite before the spectre of Greece's eviction from the euro zone returns with a vengeance.

The latest bailout deal is the toughest and most humiliating in the history of the EU. The Greeks are not only expected to overturn all the austerity-busting measures they implemented earlier this year, but also to increase sales taxes, cut pensions and accept the return of the hated international financial inspectors. The inspectors will not only monitor the country's performance, but are also empowered to veto any future measure which they consider unacceptable. In the words of one European leader, Greece has now become "a protectorate of Europe".

Yet the most humiliating provision is the requirement to place up to €50 billion worth of state-owned assets into a special agency, whose task will be to sell them, and use much of the proceeds to repay Greece's creditors. The move replicates almost exactly the establishment during the late 19th century of the so-called International Committee for Greek Debt Management, run chiefly by Britain and France, which took physical control of Greek ports and is remembered as an odious institution.

Rebellion is roiling in Greek Prime Minister Alexis Tsipras' ruling Syriza party. Some of its hard-line left-wing members have openly rejected the bailout while the leader of the Independent Greeks, a right-wing coalition partner, has also said that his party could not agree to the plan, calling it a "coup by Germany", Europe's biggest creditor nation.

As Mr Tsipras' overall parliamentary majority is only 12 seats in the 300-member legislature and the number of government rebels is expected to top 20 MPs, approval of the sweeping measures will require the support of the opposition. In theory, that should not be difficult as both the Socialist Pasok and right-wing New Democracy are pledged to vote with the government on approving the austerity plan.

A protester arguing with police while holding a Greek flag on the stairs leading to the Greek Parliament in Athens on Monday, during a demonstration calling for the dismissal of accords between Greece and its European creditors and further austerity measures. PHOTO: AGENCE FRANCE-PRESSE

But it is difficult to see how Mr Tsipras can sustain so many defections without reshuffling his Cabinet. Some political observers in Athens are predicting that he may be tempted to offer places to other political parties in what could become a government of national unity.

However, there is scant chance that opposition politicians may find it attractive to join a government that is bound to be eroded by unpopularity and can only end in ignominy. Mr Tsipras went in a single week from being hailed as a Che Guevara-style romantic revolutionary to being regarded as a political irrelevance; the man gambled his entire country on the assumption that Europe needed Greece more than it needed Europe, only to discover that the reality was precisely the opposite.

In all likelihood, Mr Tsipras will linger on in power for a while, perhaps at the head of a minority government, but will have to opt for new elections. So, Europe will soon discover that, having dealt with the mayhem of Greece's finances, it will also have to contend with the chaos of Greek politics.

But in either case, the idea that, having gone to the brink of bankruptcy three times in as many years, Greece is about to transform itself into a model of fiscal rectitude, remains fanciful. Its problem is not so much the adoption of the right legislation or financial targets, but the lack of good governance and the heavy burden of a century of mismanagement.

Even if the entire €320 billion worth of debt which Greek governments have accumulated were to be written off completely, the country will still need to borrow, and will soon be plunged again into debts, for it does not produce enough to sustain the standard of living to which it has grown accustomed.

It is nonsense to claim that impoverished Greece is being subjected to "terrorism" or "financial waterboarding" by the rich EU, as some politicians in Athens have alleged. What is one to tell the Slovaks, a small former communist nation which is poorer than Greece, but is still asked to pay for the results of the incompetence of its fellow EU member? And what is one to say to the Irish or Portuguese, who have done everything expected of them to successfully emerge from their own financial crises, but are now expected to shell out another €3 billion to prop up Greece, which refused to follow their example?

Economists urge Europe not to see the Greek crisis as a "morality tale". But ultimately, the question is also one of morality: This is a confrontation between a Europe which is relatively well-governed, and one which is not.

Even if approved, the latest bailout deal is hobbled from the very start for lack of legitimacy. There is is no one in Germany or elsewhere in Europe who genuinely believes that Greece will be transformed by the latest offer of cash; at best, the hope is that the Greeks and their problems will simply go away.

And there is nobody in Greece who welcomes the bailout either, for what it promises is not a short period of austerity followed by recovery, but a permanent reduction in Greece's standard of living, one more appropriate to the country's real status, which is one of a developing rather than developed economy. A few months from now it will become clear that whatever undertakings Greece makes today will be ignored.

This week, Europe faced a choice between kicking the Greeks out of the euro zone, and throwing good money after bad. Europe chose the latter, but will not escape having to confront a "Grexit" once again.

A version of this article appeared in the print edition of The Straits Times on July 15, 2015, with the headline 'Spectre of 'Grexit' will return to haunt Europe'. Print Edition | Subscribe