Greece And The Euro

Few expressions are more abused among commentators than the description of a pending meeting of European Union heads of government as “a make or break summit.” But given the Greek-Euro area turmoil and the deepening military conflict in eastern Ukraine, the European Council meeting which begins today in Brussels was always likely to be seen by some in these terms.

However neither Greece’s long-term place in the Euro-area nor the alarming tensions between Russia and the West over Ukraine will be fully and finally resolved at this meeting. Of course the two crises will dominate the discussions of the European Union leaders but the auguries of eventual agreement remain mixed.

The overnight meeting of Euro area finance ministers produced no progress at all over Greece’s call for a change in the terms of its bail out agreement with the Euro-area. But there were optimistic hints from a meeting of the leaders of Russia, Ukraine, France and Germany about progress towards a new ceasefire in eastern Ukraine but no confirmation of any firm agreement.

The election of the left-wing Syriza in Greece has thrown a time bomb into the economically stagnant waters of the EU single currency Euro-area. The Greek government has shocked some other Euro-area countries, by pointing out that the endless austerity imposed on Greece will not – indeed cannot – achieve the desired reduction of its debts to the EU and the IMF. They have made it clear that the Greek people’s patience with this mindless strategy is exhausted.

Many international economic experts who have examined the Greek situation in detail tend to agree with Athens. There have been influential appeals for a compromise between the Euro-area governments and the Greek government over its demands for an easing of its debt burden, more time to meet its repayments and a formula tying future repayments to an improvement in Greek economic growth.

But influential doctrinaires – notably in Germany – insist that the Greeks continue with their economic hair shirt, whatever the poverty and injustice inflicted on the Greek people. Some right wing and populist politicians seem even prepared to push Greece out of the Euro-area if Athens will not toe the line. Fortunately Germany’s partners did not take such a negative stance when agreeing to German debt relief in the 1950s.

The Greek prime minister, Alexis Tsipras and his finance minister, Yanis Varoufakis, stress their willingness to compromise. The Athens’ government plans to raise minimum wages and re-hire sacked workers will be spread over the next four years. Far from wanting to be given even bigger loans by the EU, they insist on new growth priorities because this will allow Greece to pay back what it has already borrowed.

So what is the realistic best outcome to be expected from the European Council in Brussels? There just might be discussion about changing the format for negotiations between Greece and the EU, the ECB and the IMF – dropping the hated “Troika” formula. The summiteers might discuss extending the period for Greece to repay its debts, reducing the interest charged on the debts and, just conceivably, linking future repayments to the recovery of the Greek economy.

We are also likely to hear more about the European Commission’s plans for a multi-billion Euro infrastructure investment stimulus with priority given to Greece and the other troubled Euro-area economies. But final agreement – if it is to come – will have to wait on a more detailed discussions among Euro-area finance ministers in Brussels next Monday.

In any event agreement must be reached by the end of February – when the next Greek repayment tranche is due. If not the risk of the crisis leading to an accidental but disastrous Greek exit from the Euro area will increase. Some on the doctrinaire, neo-liberal right say that a “Grexit” would not be such a disaster because the resulting financial turbulence could be handled by the ECB and the other Euro-area central banks.

But this ignores the dangerous precedent which would be created. The question would be posed: if push comes to shove might other weaker Euro-area economies be forced out of the system in any future crises? Financial speculators would need little encouragement to trigger a self-fulfilling prophecy.