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The Greek debt crisis explained (for now)

Photo of: Temple of Athena Aphaia, Aegina Island, Greece

Photo: Eustaquio Santimano (CC BY-NC-ND 2.0)

A Q & A with Phil Triadafilopoulos

The high stakes poker game between Greece and its creditors continues this week with Athens facing a €448 million payment to the International Monetary Fund April 9.

Last week, Athens proposed a 26-page list of reforms to secure financial aid from its EU partners and prevent it from defaulting on its foreign debt. Conspicuously absent from the reforms: an overhaul of the Greek pension system and labour market measures that would be in direct contrast to the newly elected Greek government’s anti-austerity election platform. So far, this week’s events have included a calculation by Greece that Germany owes it €279 billion in reparations for the Nazi occupation — and a high profile meeting between Greek prime minister Alexis Tsipras and Russian leader Vladimir Putin.

With negotiations and revelations continuing, U of T News writer Jelena Damjanovic spoke with Phil Triadafilopoulos, associate professor in the Department of Political Science at UTSC and the School of Public Policy and Governance.

A member of the European Parliament recently accused the European Central Bank (ECB) of blackmailing Greece but ECB President Mario Draghi suggested it was the other way around.

Blackmail is a strong term. But it’s not hard to see why both sides are throwing it around. The Greeks would like more assistance from the ECB to offset currency flight and maintain a modicum of liquidity. The ECB claims that its assistance has already been substantial and limits on Emergency Liquidity Assistance are needed to ensure that relevant terms of the bailout agreement are honoured. The ECB’s position has doubtlessly made life harder for Greek leaders, prompting accusations of financial “asphyxiation.” Predictably, ECB officials have rejected such claims.

Rumours have emerged that Russia could offer Greece a bailout if the European Union declines.

I don’t believe that is realistic at all. As Professor Stathis Kalyvas pointed out in his lecture inaugurating the University of Toronto’s new Hellenic Studies program, the principle aim of Greek politics since the establishment of the Greek state has been to build strong ties to the West. This is reflected in Greece’s membership in NATO and the EU. Most Greeks are not interested in cutting ties to the West and SYRIZA has not been authorized to do so.This has made the government’s bargaining position difficult: it has a mandate to renegotiate the terms of the bailout agreement and end austerity but no mandate to leave either the eurozone or EU. While there are important religious and other connections to Russia they do not translate into significant political ties — there’s too much to lose.

It’s also not at all clear that Russia is in a position to offer Greece the sort of support it needs to meet its debt obligations.

Greece’s Finance Minister Yanis Varoufakis has said that his government wants a new plan for fiscal stimulus with repayment of existing debt tied to Greece’s ability to restore growth.

Dr. Varoufakis and others understand that no one is interested in seeing Greece leave the eurozone because the consequences of such a move are unknown. It would introduce a degree of instability and uncertainty that would be most unwelcome. Also, if the debt is to be repaid the Greek economy will have to stop shrinking. Cutting one’s way to balance via endless austerity is politically untenable — the Spanish “success story” is a modest one; unemployment is still very high and support for opposition parties remains strong.

If Greece defaults, it would become the only advanced economy to default on its IMF loans. Could this lead to a renewed process of handling IMF loans, as well as debts?

I presume it would, though I cannot say how. What’s clear is that there’s little appetite for finding out, though there appears to be some difference of opinion on this matter between Varoufakis and some of his colleagues. Varoufakis’ side has prevailed for now, as evidenced in his recent meeting with the managing director of the IMF, Christine Lagarde.

How do you expect the events to unfold in Greece and what will their effect be on countries in similar predicaments: Spain, Portugal, Italy?

Mr. Tsipras cannot repeat the course of the last government led by Mr. Samaras, moving from defiance in opposition to retreat and capitulation after taking office. On the other side, there is some interest in demonstrating that the positions championed by SYRIZA are futile and that the future lies with a “moderate” political class willing to meet outsiders’ demands in order to maintain Greece’s membership in the eurozone. This may backfire: SYRIZA’s downfall may push even more Greek voters to the extreme Right, making a return to the pre-2015 status quo impossible.

A positive outcome requires compromise, but overheated rhetoric, strategic gaffes, and the collapse of trust on both sides have made reaching such a compromise all the more difficult. I don’t know how things will go. I worry for Greece and I worry for Europe.