Brian Monteith: Grexit could hurt parties of left

Politicians with strong anti-austerity policies will be watching the situation in Europe closely this week, says Brian Monteith
A man sells Greek flags  could the country next reclaim the drachma? Picture: APA man sells Greek flags  could the country next reclaim the drachma? Picture: AP
A man sells Greek flags  could the country next reclaim the drachma? Picture: AP

This week should see the final moves in the interminable Greek tragedy of that nation’s debt crisis and thus clarify whether or not the country can continue to use the euro or will have to reintroduce the drachma.

While the focus will initially be on the financial fallout across Europe, if Greece does default and then ends up outside the eurozone there must be political consequences too.

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The Greek prime minister, Alexis Tsipras, has played a canny game by proposing on Friday that his people would be consulted over what he considered unacceptable proposals for greater austerity than he was prepared to accept, using that democratic process European Unions leaders most hate and fear: a referendum.

Greek prime minister Alexis Tsipras has played a canny game. Picture: GettyGreek prime minister Alexis Tsipras has played a canny game. Picture: Getty
Greek prime minister Alexis Tsipras has played a canny game. Picture: Getty

This unprecedented plebiscite will be held next Sunday – crucially after Greece is due to repay the International Monetary Fund €1.5 billion tomorrow – and to raise the stakes further his government will recommend a “No” to the austerity measures. As Tsipras is providing such an unprecedented democratic consultation, he believes it will not be a resignation issue if Greece votes Yes to accept public spending cuts and higher taxes, for he will then do the electorate’s bidding and apply the measures.

It may, of course, not get that far. This saga has had so many twists and turns, so many last-minute deals that there may yet be an agreement to reschedule debt repayments under modified terms – but with the eurogroup of nations also playing hardball by withdrawing their most recent proposals (that are the subject of the referendum) and refusing a payment extension to beyond 5 July, the likelihood of a Greek default is now looking very strong.

With a further debt repayment due to the European Central Bank of €3.5bn on 20 July, the expectation is that Greece must exit the euro otherwise its banking system will collapse as more funds are withdrawn or transferred abroad. Had the authorities not decided to close the Greek banks today, a run would already have started by the time you began reading this column. And tomorrow?

Without a deal, the immediate problems for Greece – funding €2.2bn for public sector salaries, from teachers to the military; keeping vital services operating like hospitals, air traffic control and electricity; welfare and pension payments – could lead to social unrest until some degree of reliable financial order is found.

That’s why so many economists believe that Greece leaving the euro is becoming not just the only possible option but the best one. Interestingly, the Greek finance minister Yanis Varoufakis has pointed out there is no provision for any member of the euro to leave, and they have no intention of asking. In other words, Greece would have to be forced out rather than go quietly.

The reason for this is becoming clear: if the Greek anti-austerity Syriza party is to remain popular, it needs to play the victimhood card by showing how it has done all it can to meet the European Union’s unfair demands – yet Greece is finally being expelled for asking for what its citizens voted for, then voted for again.

Varoufakis tweeted last week: “If Spain goes, Italy is a gonner. If Portugal leaves, Spain will follow. If Greece leaves, Portugal cannot stay. QED.” Knowing that the threat of contagion from Grexit across to Portugal, then Spain, Italy and even France will be in the minds of EU and European Central Bank leaders might just save Greece. If it doesn’t, it will certainly mean the eurozone rules will need to be redesigned and that tighter financial controls on governments will require changes to EU treaties, initiating further referendums in other EU countries that could prove problematic. Opposition to the euro in Germany and France is mounting and there remains a chance the EU’s most important project will unravel.

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The political impact of the Greek debacle was immediately seen on Thursday, when David Cameron had only ten minutes at the European Council summit dinner to brief his fellow leaders about his proposals for negotiating new membership terms for the UK. The issue had never made the agenda and was marginalised further as the wrangling over how to deal with Greece and the Mediterranean refugee crisis dominated until 3am. Cameron was told the first discussions would take place at the next meeting in December – but Grexit and any contagion that follows could see even that consolation prize withdrawn – much to his embarrassment.

The received wisdom is that any failure of the eurozone, such as a Grexit, is likely to strengthen the hands of supporters of the UK’s withdrawal from the EU – notwithstanding there could be negative impacts on the UK’s economic growth from turbulence in EU economies – and that the worse any eurozone implosion is the better for eurosceptics.

That may indeed play out to be true, but what has not been factored-in is how a lengthy eurozone crisis could so marginalise Cameron’s renegotiation as to throw the timetable into chaos and make any concessions fall below even his low bar of expectations. In such circumstances, could Cameron be forced to actually recommend the UK leaves the EU? How could he defend a failed renegotiation?

Eurosceptics would find this surprising but the potential for surprises does not stop there, for I happen to think a Grexit could bring about a significant crisis of support for the EU in left-of-centre parties.

If, as is entirely possible, a Grexit happens because a radical left government has engineered such a situation as the only way to deliver the anti-austerity policies that it was given a mandate to introduce, where does that leave the anti-austerity campaigners and parties such as the SNP in their attitudes to EU membership? True, Greece will still remain in the EU, but the message will be clear: the EU institutions are on a course to gather ever more powers and controls to support the euro currency project and by remaining inside the EU anti-austerity policies will be unwelcome and ever closer union guaranteed.

In such circumstances the ability of left-of-centre parties to deliver the policies they advocate could become more difficult and independence would be meaningless for Scotland. A well-argued column by John King in the New Statesman magazine this month about why the left should campaign for a British exit is now looking highly perceptive. For the left, Grexit may become a catalyst for reassessing the EU.