Roosevelt Institute | Cornell University

Good Grief (Pronounced "Greece")

By Alex PundykPublished February 22, 2015

How one of the smallest economies in the European Union poses its most substantial financial risk, and the political perils therein; as negotiations within the European Union continue to offer hope of economic salvation for Greece and the Euro zone, the more interesting question becomes how the political fabric of Europe will be changed.
In the past few months, Greece has disturbed the European economic sphere with its seemingly perennial economic distress. Although the support of the European Central Bank and tepid success of recently held ECB Stress Tests mitigate the potential damages of Greek default, in assessing the severity of the situation, one cannot help but harken back to the similarly grave crisis spanning 2010-2012.

In short, the previous debt crisis was a crisis of faith: faith in Greece, faith in the Euro, and ultimately faith in a unified European monetary system. In the face of Greek default and what may have been a ravaging "domino effect", or sequence of bank failures that would lead to the financial implosion of the European Union, the European Central Bank successfully purchased government bonds that relieved Greek debt and allowed for the Euro zone to avoid this sequential deterioration. Now, despite three years of solid growth in the Greek private sector, the crux of the financial dilemma stems once again from amassing debt, low productivity, and Greece's vehement rejection of austerity measures.

Despite the fiscal challenges posed by Greece and other struggling economics, including Italy, Portugal, and Ireland, the impending Eurozone crisis is not that bleak. With proven support from the ECB, and replenished faith in the Eurozone, the Greek crisis has more political than economic significance. As phrased most succinctly by Olivia Sterns, co-anchor of Bloomberg Surveillance, "[The Greek issue] is no longer a concern of market risk, but of political contagion". How then, might turbulent economic negotiations affect the political sphere of the European sphere?

First, we must understand the protagonists and overarching themes at play: German sternness as both the lender of credit and leader in EU discussion, as spearheaded by Chancellor Angela Merkel; the radicalism of highly outspoken Finance Minister and member of the controversial leftist Syriza party, Yanis Varoufakis; the impressionable Greek Foreign Minister Nikos Kotzias  and perhaps most worryingly, his Russian counterpart, Sergei Lavrov.

Attempting to forecast the precise outcomes of this financial quagmire would be futile. But there are a number of points that I would like to draw attention to in order to understand the complexity of the political situation at hand. First, it is interesting to note the ironic position of power that Germany has secured following nearly a century of war, in pursuit of the position as singular leader of Europe. Rather than enjoying the uncontested leadership of a great European continent, the Germans have since been helplessly obliged to stabilize a shaky Euro zone as the principal economy in the European Union. The next area of note is the tension between Germany and Greece, exemplified by an almost laughable request for Greece to be paid World War II reparations by Germany, in exchange for debt payment. These factors, compounded by the open resentment Merkel has demonstrated toward Vladimir Putin, sets the stage for an explosive series of negotiations in Europe, and most significantly those between Greece and Russia. The threat of Greece being swooned by Russian economic support and thus becoming politically linked to Russia looms in the minds of Western Europeans and Americans alike. Even if the financial crisis reduces to a simmer, any shift in power as a result of these interactions will change the political fabric in Europe and the globe moreover; additionally, as the world increasingly focuses on Russian aggression toward Ukraine, any political factor that alters an already tense situation will be even more greatly exaggerated. The layers of complexity regarding this Euro zone dilemma at once reminds us of the inseparability of politics and economy, and the far-reaching multidimensionality of policy.