With the current crisis in Greece, the European Union is facing the toughest test of its 65-year history. The EU, which started as an international, democratic effort to overcome World War II, is now struggling to keep itself united, at least economically. And its headaches originate from its most symbolic accomplishment: the euro.
Greece, already bailed out by its European peers twice in 2010 and 2012, is now experiencing its own version of the Great Depression. After having been the first developed country to default on an International Monetary Fund loan, and upon the first signs of a run on the banks, the Greek government closed them, limited withdrawals to a daily 60 euros per account, and called for a national referendum on whether it should compromise with creditors –answered by an ‘Oxi’ (No) at over 61% last Sunday.
Nevertheless, this referendum was too quickly perceived as a vote on whether or not to remain part of the Eurozone, and hence, keep using the euro as currency. But it was not a “should we stay or should we go” referendum. It was instead a vote on austerity measures. Both Europe and the Hellenic Republic have much to gain by avoiding cutting ties, starting with their currency ones. And there is a path for Greece to remain in the Eurozone.
The situation is dire and worsens by the day, as banks can run out of liquidity anytime, and Greece faces a July 20th deadline on a 3.5 billion euro debt payment to the European Central Bank. This evening, Greek leaders were given only until Sunday to present a plan to save its collapsing economy.
Whether or not it leaves the euro, the Greek economy will suffer. Its growth has already collapsed, and these summertime events are leading to a drop in tourism, which Greece relies on for 1/6th of its GDP. The Hellenic Republic would most likely undergo softer, longer pain should it keep the euro and sharper, shorter chaos should it be forced to drop it. In such a scenario, it would most likely rely on a system of IOUs before going back to the drachma.
For the Old Continent as a whole, the consequences of a ‘Grexit’ are serious. It would prove that the currency union is revocable and it would discredit the euro. It would mark the first step backwards of the pan-European political and economic ideal. It would open the door to future conflicts with other financially unsound countries, such as Italy or Spain, at a time of rising nationalism and populism in the Union –a dangerous combination. And Greece’s economic headaches also create a risk of contagion to other European economies, much like Lehman Brothers’ 2008 issues rapidly spread to the other financial institutions of Wall Street.
Even if it counts for only 2% of the European GDP, the country of Plato belongs culturally, historically and geographically in Europe. It should stay within the currency union. However, it should evolve dramatically. Much like the city of Detroit in 2013 when it filed for bankruptcy protection, Greece needs a new start, a new mentality and a new basis to build on. The policies and attitudes of Syriza, the recently elected, leftist government led by Prime Minister Alexis Tsipras, have hurt the debt restructuring process. Much of the Greek pain could have been avoided if European leaders had felt Greece was ready to come to reasonable terms earlier on. Nevertheless, the recent resignation of finance minister Yanis Varoufakis, the extravagant and self-described ‘libertarian-Marxist’ poster child of Syriza’s much criticized viewpoints and behaviors, seem to indicate increased willingness to compromise.
The International Monetary Fund is pushing for Greece to stay within the Eurozone, while for the first time Tuesday night, Germany seems open to softening its stance. It has been the main creditor and adversary of a Greek debt compromise.
Europe is in a position to agree to a third bailout of Greece. In light of what the country and its citizens have suffered, it is safe to say that the EU would not create a precedent for other countries to follow –no population would want to experience such deep social and economic pain, and few leaders would want to undergo political brinkmanship akin to the current negotiations.
Still, Greece needs swift economic reforms and austerity measures of some extent in order to set itself back afloat. These should include fully collecting tax revenues and cracking down on tax evasion, a major Greek issue. In the longer run, what Greece really needs is to invent itself a more robust economy, which does not rely so much on the international community, whether financially, or for income from tourism.
The Greek tragedy of these past two weeks have already changed the EU forever. Greece is a small part of it, but an important symbol. In today’s world, Europe cannot afford to shrink if it wants to compete on the global stage, and the Western world needs Europe to stay tight-knit at a time of multiplying international tensions.
Rémy Raisner is a French-American real estate investor and CEO of Proteus Capital Management, and is based in New York City. His articles have been featured in Forbes, the Philadelphia Inquirer and Le Monde.