Saving Athens

Saving Athens

Closer European financial integration is the best way to solve the Greek debt crisis. The future of the EU is at stake.

Greece is roughly the size of Alabama, has the economy of Massachusetts, a population smaller than greater Los Angeles, and represents about 3 percent of the eurozone's economy. Even so, the country's recent debt crisis will potentially have significant international implications.

For the European Union and her sixteen-member-strong euro project, the consequences already appear to be negative. The euro was launched only after the end of the Cold War and ambitiously aimed to rival the U.S. dollar as the world's reserve currency. Nonetheless, Greece's economic crisis has exposed serious structural weaknesses in the currency bloc. The contradictions and institutional inadequacy of having a monetary union without a parallel fiscal and political union have come to the forefront. Such a situation may well prove untenable in the future.

The consistent failure of member states to adhere to the eurozone's strict rules has been exposed. For instance, since 1999 the rule that debt cannot exceed 3 percent of GDP has been ignored on no fewer than forty-three different occasions. (France and Germany have also been among the violators, Greece being simply the most egregious one.) At the same time, no bailout mechanism exists (hence the possibility of Greece's IMF rescue), nor has the exit of a state from the eurozone been legally envisioned. Finally, the European Commission has failed to adequately monitor Greek financial shenanigans and creative accounting in general, thus casting serious doubt about her capacity to act as a credible watchdog.

As a result of the Greek debt crisis, the euro's value has declined and it has emerged that the entire project urgently requires rethinking of some of its foundational arrangements. Although any predictions about the euro's demise are clearly premature, a period of introspection appears inevitable. By default, the dollar's position as the world's reserve currency has been strengthened, since it faces none of the political and institutional deficiencies of the euro.

Limits to European solidarity have also been revealed. The EU harbors ambitions to create a closer political union with the concomitant creation of a strong European identity. However, the Greek crisis has amply demonstrated that strict adherence to domestic political priorities and national-interest considerations remain dominant.

The public spat between the Greeks and the Germans is illustrative of this reality, as well as of the fact that the traumas of modern European history have not been entirely overcome. More specifically, a majority of Germans oppose any Greek bailout and support the profligate country's exit from the euro, thus leaving limited political space for any initiative by Chancellor Angela Merkel. Suggestions from the German press that Greece sell the Acropolis and various islands, as well as the occasional article that verges on racism in criticizing the Greeks have created an unpleasant atmosphere. Greeks have reciprocated with a deluge of media about the barbarous Nazi occupation during the Second World War, while the country's Deputy Prime Minister Theodore Pangalos even raised the issue of wartime reparations. This is clearly not the picture of a supranational union of peoples, operating upon the principle of solidarity and sharing a common identity and future.

An EU that is weaker, introspective and in the process of questioning various parameters of its own future could mean that member-states might be even less inclined to share burdens with the United States on various crucial international issues, including Afghanistan and the fight against terrorism. In this sense, Euro-Atlantic relations could suffer as a result of processes that have been initiated or accelerated by the Greek debt crisis.

An introspective EU could also negatively the accession prospects of the Western Balkans. Given the financial concerns about current members such as Portugal, Ireland, Italy, Greece and Spain, and the existence of so called enlargement-fatigue, it is likely that additional worries will arise about the wisdom of incorporating new states in clear need of serious economic assistance into the EU. Such a skeptical viewpoint may be popular with electorates, but could prove to be both unfair and detrimental for the Balkans. Contrary to what is often argued on this website, it is important to help the Balkans integrate with the West. If the EU cannot successfully incorporate a number of small countries in its own backyard, it would be rather presumptuous to claim a global role on a host of issues; and as a result, the whole European unification project will also be further undermined.

At the same time, if the Western Balkans states end up more removed from accession to the EU, they might end up causing security problems for the Europeans. Weak states without firm Euro-Atlantic prospects could be a magnet for illicit and terrorist activities. This potential consequence ought not to be underestimated by international decision makers.

Finally, there seems to be a rise in international populism as world leaders appear united in their condemnation of nefarious speculators. Speculators (by which we primarily mean hedge funds) can sometimes have a negative impact on crisis situations. But their role is often overblown. For example, one credible study published by Germany's BaFin showed that credit-default swaps played a peripheral role in the recent Greek economic imbroglio. In reality, the role of speculators is not the root cause of Greece's economic woes-an external debt of 300 billion euros and a budget deficit of 12.7 percent are at fault. Nevertheless, domestic political audiences seem receptive to such rhetoric, and calls for further regulation and condemnation will probably increase. However, the fact that at the same time hedge funds are called upon to essentially finance the debt of various countries demonstrates the limits of this approach.

The current situation in Greece requires the institutional strengthening of the euro, possibly through the creation of a European Monetary Fund, an attempt to exhibit greater solidarity among EU member states, a reaffirmed commitment to not abandon the Western Balkans, as well as the use of realistic and measured rhetoric by politicians. Ultimately, the best way to counter the negative international implications of the Greek debt crisis is through closer Euro-Atlantic cooperation and greater European fiscal and political integration. Failure to act in such a manner may prove detrimental for the future of both Europe and the West.


Aristotle Tziampiris is an assistant professor of international relations at the University of Piraeus. The views expressed here are his own.