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Greece Is Playing Economic Chicken With the Rest of Europe

Greek Prime Minister Alexis Tsipras has made it clear that he won't back down from reversing austerity measures, raising the possibility of a new Eurozone crisis.
Photo via Wikimedia Commons

In a speech Sunday before parliament, Greek Prime Minister Alexis Tsipras made it clear that, despite warnings from leaders across Europe, he won't back down from reversing the austerity measures, steep tax increases, and harsh spending cuts that were demanded of his country in exchange for billions in bailouts to stave off economic collapse.

His remarks raised the possibility that if European Union leaders, especially German Chancellor Angela Merkel, don't bury the hatchet soon and negotiate a new financial deal with the Greek government, the looming standoff could spark a new Eurozone crisis that will affect the value of the currency used by 19 countries and hundreds of millions of people.


Tsipras promised to rectify "the injustices the bailout agreements have brought," and said he plans to rehire a group of laid-off cleaning ladies who have been camping outside the Ministry of Finance, as well as school guards and university staff who have lost their jobs.

At the same time, Tsipras vowed to limit the privileges and expenses of government ministers and deputies who haven't suffered as much as working-class employees.

'I do not think that Greece will ever be able to repay this high amount of debt, it is simply not realistic.'

Last week, Tsipras and Greek Finance Minister Yanis Varoufakis travelled to Britain, France, Germany, and Italy pleading for mercy from creditors. On Monday, the prime minister was slated to visit Austria. So far, few leaders have been inclined to renegotiate, even as Varoufakis warned at a recent a press conference in Germany that neo-Nazi parties such as Greece's Golden Dawn have gained at the ballot box amid Europe's continued demands for austerity.

On Wednesday, Eurozone finance ministers are scheduled to gather to discuss Greece's debt. Most experts say they have little choice but to renegotiate the terms of Greece's $270 billion bailouts. If Greece doesn't pay, confidence in the euro will plummet.

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"I do not think that Greece will ever be able to repay this high amount of debt, it is simply not realistic," Andreas Nölke, a professor of International Political Economy at Goethe University Frankfurt, told VICE News. "Greece already has received substantial debt write-off. The conditions imposed are based on a wrong policy and did terrible harm, but those who have imposed the conditions believe in this policy."


Since the crisis began in 2008, Greece's gross domestic product has shrunk by a quarter. More than a quarter of the population is jobless. Youth unemployment has reached 60 percent. The lion's share of the country's bailout cash has simply paid for debt service on its previous loans, so the government is unable to make substantial investments in economic growth.

More than 300 economists and academics from around the world have signed a petition that demands "debt justice" for Greece. They argue that austerity has plunged the country into a depression that will likely cause public debt to further increase.

Stephany Griffith-Jones, an economist with the Initiative for Policy Dialogue at Columbia University, was among those who signed the petition. She told VICE News that the German economy is also suffering from austerity, and that Berlin has tightened government spending out of a fear of excessive debt, which has had the effect of choking off growth throughout Europe.

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"An important point people seem to be missing is that Germany itself is not doing very well at the moment," said Griffith-Jones, an expert in the Latin America debt crises of the 1980s. "German growth is very little above zero. That's because of the problems of the sanctions with Russia, but it's also because of this austerity."

She suggested that the Germans should adopt a looser fiscal policy for their own country and increase wages, a move that could indirectly benefit Greece and Spain.


Tsipras's left-wing Syriza party came to power in Greece two weeks ago on the promise to renegotiate austerity with the rest of Europe. Varoufakis has proposed solutions like swapping Greek debt for perpetual bonds or growth-linked bonds that repay investors as long as the Greek economy expands.

"Basically, what they need is fiscal space to increase spending, investments, and wages, which have fallen so dramatically while taxes have risen," Griffith-Jones said. "Syriza seems to be very willing to do a lot on taxes on the rich. I'd think that democratic governments like France and Germany would be very sympathetic to that."

At the same time, Europe seems to be squeezing Greece. Last week, the European Central Bank (ECB) stopped accepting Greek bonds as collateral for financial transactions from Greek banks. The move didn't cause an immediate problem because Greek banks haven't been using Greek government debt in their transactions. But it was a factor in Standard & Poor's recent relegation of Greece's credit rating to junk status.

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"The decision can be seen as a symbolic move that the ECB is not comfortable with the recent announcements of the Greek government," Nölke said. "It can also be seen as a symbolic move to both sides of the negotiation table that something urgently has to be done to come to a solution."

Tsipras hopes to find allies in Europe who share his feeling that a deal is urgently needed.

"The crisis is not Greek, it's European, so the solution has to be European," he said Sunday.

He has the support of the Greek people. A recent University of Thrace poll found that 70 percent of Greeks agree with the government's negotiation tactics. In this game of economic chicken, many Greeks feel they have little left to lose.

Photo via Wikimedia Commons