Loss of Greek sovereignty a warning for other indebted EU members

Share

If old-fashioned Greek colonels had Twitter accounts, they might find wry amusement in the latest hashtag #itsacoup where some very old-fashioned German-bashing by younger folk is trending. The notion is that Monday's bailout deal between Greece and the Eurogroup finance ministers is tantamount to a German takeover. Angela Merkel, the German Chancellor, is cast as a jackbooted Swabian housewife invading the Ionian beaches.

Leaving aside the obvious point that, right now, Greece needs as many German boots on its beaches as it can get, the twitterers are asking an interesting question. Is the EU moving toward some sort of political power grab in Athens? The answer could be yes because, if the bailout legislative package is approved by the Greek parliament, the Greek economy will no longer be run by Greeks but by the euro zone finance ministers. The question for the ordinary Greek, then, is not whether this is an outrageous violation of Greek sovereignty but whether it is a better or worse outcome than a default and a swift but chaotic exit from the euro zone.

The critical bit of Monday's bailout conditions is not the pensions reform, nor is it the sweeping changes to the value-added tax, the attack on Greece's left-leaning labour laws, nor even the €50-billion ($70-billion) privatization of everything but the kitchen sink. The earth-moving moment will be Greece's consent to the creation of an independent fiscal authority that will have the power to automatically reduce Greek public spending if budget targets are breached.

In other words, the Greek government's ability to spend money is summarily cancelled. That power is devolved to an "authority," which is under the control of people in Brussels. To remove any further doubt about who is in charge, the bailout is conditional on the return to Athens of the troika, the representatives of the the three creditor institutions – the European Central Bank, the International Monetary Fund and the European Commission. It is stipulated that the Greek government will consult the troika on "all draft legislation in relevant areas."

In other words, Greece's parliament will pass no law without troika approval, barring perhaps the regulation of the feta cheese market. Or maybe that too, because the EU is delving deep into Greece's sclerotic and overregulated economy, demanding reforms on Sunday trading, pharmacies and bakeries.

Twitter folk would have you believe that this is some sort of nasty creditor revenge, the equivalent of a bank seizing the door keys from a defaulting householder. It is much more than that; it is a fumbling step toward the fiscal union craved by Germany, the political and economic integration that would underpin the euro zone and make it function effectively as a single currency area.

If the Greek parliament submits to the troika's dominion, Greece will be the sacrificial lamb on the altar of an imperial vision of integrated economies, run according to federal budget rules. It is very much Germany's vision and to give Germany its due, a common policy on government spending is precisely what the euro zone needs to avoid disasters such as Greece.

Unfortunately, there is no consensus in the euro zone on fiscal integration. France, the nation that more than any other was the philosophical cradle of the idea of a European union, is deeply opposed to fiscal union. It is for that reason that President François Hollande has been deeply involved in the rescue of Greece as he fears a bad outcome and political precedent that might be created. The threatened political coup by the troika in Greece is a lesson to other fiscally challenged EU states, such as Spain, Portugal, Italy and France, of what may lie down the road if they don't put their houses in order.

For ordinary Greeks, the choice is between the devil and the deep blue sea. However, it must be true that for any vulnerable person, whether a pensioner, a disabled person, an unemployed or otherwise struggling individual, there can be no question but to accept rule by the troika's generals.

Imperialism of the bureaucratic EU variety would be benign compared to the chaos and civil unrest that would ensue if Greece was catapulted from the euro zone. Greeks would be sovereign but vulnerable to fascist or communist-inspired turmoil that could lead to a military putsch. Greece would return to the 1960s in both its standard of politics and standard of living. It is also true that a Grexit and ensuing devaluation could be a huge opportunity for young and ambitious Greeks (or expatriate Canadian Greeks) with dollars offshore ready to profit in carpet-bagging investments in a low-cost economy. Greece could roar back in five years as a leaner and more dynamic economy but it would be a hideous half decade.

My impression is that few Greeks have the stomach for an Argentine-style collapse and recovery. The IMF has made clear that it cannot support any deal for Greece without creditor relief and that must mean that some kind of debt haircut will follow the final bailout.

If Athens is to become a colony of Brussels, there are much worse fates and my guess is that while Greece may be the first victim of Germany's new fiscal order, it will not be the last.

Carl Mortished is a Canadian financial journalist and freelance consultant based in the U.K.