Greece’s Debt and the Future of the European Union

Greece’s debt may be too great for the country to remain in the European Union. Can Greece avoid a financial collapse and have its happy ending?

By David BrownFebruary 19, 2015 2:11 pm|

James K. Galbraith is an American economist, but he’s also a close friend of new Greek finance minister Yanis Varoufakis. Galbraith has been present for the recent Greek negotiations in Brussels with the European Union in regard to Greece’s debt.

From that vantage point, Galbraith joins the Standard to discuss Greece’s problems, who has control of the outcome, and the possibility – however distant – of a happy ending.

So in regard to its debt, what leverage does Greece have at the moment?

“None at all,” Galbraith says. “And that’s a great strength of the Greek position – is that it is not based on any threats or blackmail. It is based upon the mandate that the government has to change the policies, which have failed in the past six years. And that’s what they are going to do – they cannot do anything else. The government is not in any position, politically or morally, where it can change that stance and that is a huge advantage over past situations [and] previous governments of other countries, or of Greece, which were not credible.”

But how does not having any leverage equate to a position of power?

“It puts an obligation on the other side to own up to a certain moral responsibility,” Galbraith argues. “Germany, in particular … can decide whether it wishes to play a very venal and petty game with potentially grave repercussions for the Eurozone, or whether is wants to look to its larger, strategic leadership in the region. And it will be very clear to the world which decision they make – and the ultimate decision in this matter will in fact, be made by Germany and not by anybody else.”

Is Greece completely unable to pay its debts?

“The Greek government, to be very clear, is able to honor its debt commitments with the basic difficulty that it has a few payments coming due in March and in June, for which it doesn’t have the cash. That cash has to be found somewhere. Apart from that, the interest payments are not a serious obstacle at this stage. The issues between Greece and its European partners turn on policies that Greece was obliged to accept as a condition of getting the financial assistance.”

So if Greece can eventually meet these payments obligations, why wouldn’t the European Union allow it?

“For Germany, it is partly a question of control,” Galbraith says. “For German political forces, it a question of validating the kinds of things they’ve been saying for years. And for some other countries of the Eurozone [also] – particularly the right-wing governments of Spain and Finland and Portugal, which are threatened by the rise of the Syriza Movement in Greece and by comparable movements that are coming up in their own countries. It’s a question of the political survival of those rather scared and desperate politicians.”

Is the future of the European Union at stake?

“The future of the Eurozone is implicitly at stake, yes. It depends, again, on the position Germany takes. Germany can elect – if it chooses – to preside over what could be the fragmentation of the Eurozone. Greece will not opt to exit, but there are circumstances in which it can be forced to do so.”

Will there be a happy ending?

“If you go to Greece six weeks ago, three months ago, it was the most unbelievably depressed and rundown place and people had this aspect of defeat. And [this] is absolutely not the case in Athens today – you have a feeling of national psychological survival, a turning of a corner, a reassertion of independence and dignity, which means much more to these people than money.”

The new government has an approval rating of 81 percent, which is unheard of in Europe. Galbraith says there’s a commitment to the future of the country that hasn’t existed before.

“So yes, from a certain point of view, there is certainly a possibility for a happy ending. There is certainly a possibility for a change in the mood – not only in Greece, but all throughout the affected countries of Europe.”

This story was prepared with assistance by Megan Jo Olson