A Failure of the Eurozone

On July 5, Greek citizens voted 'no' on a referendum to agree to a bailout plan that was put forward by the country's creditors as the nation flirts with defaulting. The message, one that was vocally backed by the leftist government party, Syriza, was loud and clear—the Greeks are tired of being dragged through austerity measures that have crippled the country's economy. Any bailout plan that will be agreed upon will be have to be on its own terms. 

But even as the voters celebrate in Greece, the problems facing them are very severe. Currently, unemployment stands at 25 percent and child poverty at 40 percent while the banks remain closed, limiting people to cash withdrawals of €60 per person at ATMs. Greece's debt-burden stands at a staggering €323 billion and they missed their most recent payment of €1.6 billion to the IMF, leading to the Europe-wide fear of Greek default and the subsequent referendum. Before analysing the options available to Greece at this disastrous juncture, it's important to understand, historically, how this crisis came to be. Understood from a heterodox perspective, Greece's debt crisis is not only unsurprising but also entirely predictable as a macro-stage failure of the Eurozone and its regional markets.

The complex connectivity of capital in global finance often means that economic disasters in one part of the world spreads itself out over several different continents. And so it was, for Greece; the financial collapse of the US economy in 2008 triggered low investment trends in Greece and the government entrenched itself in more and more euro-debt to continue the functioning of the economy (i.e. payment of salaries, grants, pensions, etc). This money came mostly in the form of the euro from the European Central Bank since the move to the euro meant that the government was no longer responsible for the supply of the currency. By 2009, the Greek government came out publicly stating that it had been underreporting its deficits and that the deficit had reached such astronomical levels that a default was imminent. In market economies, a default occurs when the borrower is no longer able to pay the lender the amount it has borrowed, especially for the fact that the original amount is multiplied by the amount of interest that is also required as payment. In cases of a default, the creditors aim to reach a new agreement with the borrower on improved terms which make it possible for the latter to pay the money back. In Greece's case, the IMF, EU nations and the European Central Bank got together to provide more money to keep the economy functioning while putting on harsh austerity measures that would make the repayment of the debt impossible. 

As with any case of austerity politics, the biggest losers were the working class, as conditions of free market investment benefitted the capital-owning class. These harsh measures eventually led to mass unemployment and underconsumption and as a result the economy suffered even more, worsening Greece's plight. It was at this critical juncture that the Greek proletariat organised themselves against the market-oriented incumbent government and the hard-left party Syriza came to power. Their philosophy based itself loosely on Karl Marx's ideology of a state-governed economy that looked after the interests of the working class. However, even as the situation got better for the working class, the government was still in massive amounts of debt and even more money was being borrowed every day to keep the economy functioning. 

In reality, this kind of scenario takes place fairly regularly in market economies, where regions become saddled with debt and have no choice but to default on its loans. The reason why Greece's case has been in the public eye is because it is a globally recognised country that is facing a meltdown. This is where the failure of the EU as a united entity comes to the fore. There will always be poorer and richer regions in capitalist economies. However, the difference between the Greece debt problem and the financial meltdown in the US is that the Greeks cannot simply print and throw money at the problem like the US did. Only the European Central Bank can provide the Euro currency that is required at this point. The EU was thus doomed for failure from the very beginning because its constituent countries do not have control of the currencies but are in charge of setting the tax and interest rates in their sovereign states. This makes the poorer regions fundamentally incapable of facing crises that are endemic to market systems without taking on a burgeoning debt load. In that regard, the Eurozone is designed to benefit only the traditionally capital-heavy countries such as Germany. In order to keep up, the poorer members such as Ireland, Portugal and Italy have no choice but to operate with strict austerity measures that end up hurting the lower classes of these countries the most. 

Analysts may point to the overconsumption and the low amounts of tax revenue generated in Greece as the reasons for the debt-crunch but these kinds of micro-analyses miss out on the bigger picture of cycles of crisis that market economies naturally face. Furthermore, these explanations are in contradiction with the empirical evidence of shortage of funds and the poverty and underconsumption that has plagued the Greek economy. The solutions at this point for Greece appear few and far between. However, they will return to the negotiating table no doubt bolstered by the show of support from its citizens about their refusal to be bullied into austerity measures again. This writer prefers the 'Grexit' where Greece leaves the Eurozone and introduces a new drachma that will be circulated instead of the Euro. It's time the Eurozone leaders understand that the working class will not always take their exploitation lying down. 

The writer studies at Knox College, USA.