There is no chance whatsoever this turbulent Greek drama is reaching any kind of denouement. There are many more acts to come. With unemployment now at 27pc, and youth unemployment above 50pc, most Greeks view their predicament as a tragedy.
To outside observers, not least Greece’s international creditors, another description might be farce. Whatever your perspective, what’s happening in Greece is surreal. By last Friday, the radical-Left Syriza government was supposed to have stumped up €300m (£219m) of the €1.6bn it owes the International Monetary Fund before the end of June.
Just hours before the deadline, Athens announced it would instead make a combined payment in three weeks’ time. The last country that pulled such a “bundling” stunt was Zambia, back in the 1980s. This delay, of course, means the arguments go on. Syriza says it will only pay the €1.6bn if the IMF, plus the European Central Bank and other bilateral creditors, themselves agree to disburse a far bigger chunk of money – the final €7.2bn from a previous Greek bail-out.
So this stand-off – the latest in an increasingly bad-tempered dispute between Greece and its paymasters – is essentially about accounting treatments. Will those who’ve lent Greece money release funds so they can partially pay themselves back, allowing everyone to keep pretending Greece is technically solvent? Amidst the cries of “no concessions” and “no surrender”, all the chest-thumping and finger-pointing, that’s what it boils down to. Maybe “surreal” doesn’t quite capture it. How about “utterly bizarre”?
The creditors say they’ll only release the rest of the bail-out if Syriza accepts various economic reforms – raising VAT, a bit more privatisation, some pension cuts – while not reversing other reforms promised earlier. At the same time, Athens must run budget surpluses rising from 1pc of GDP this year to 3.5pc in 2018, to maintain the fiction Greece will conquer its gargantuan sovereign debt mountain – now some 180pc of GDP.
Syriza, for its part, insists the required budget surpluses will hinder recovery and that proposed “austerity” reforms directly contradict the will of the Greek people (as expressed in the January election).
Athens says creditors must anyway recognise that much of Greece’s €320bn of sovereign debt will never be repaid, so should now be written off. That would be on top of the €100bn erased from the slate in 2012, one of the largest debt restructuring deals in history.
That original deal also shunted the vast bulk of the remaining liabilities handily away from the yield-chasing banks that made the hubristic loans in the first place and into the laps of eurozone taxpayers, not least those living in Germany.
The current situation is absurd, then, but it’s also entirely understandable – inevitable, even – within the context of the incoherent and deeply dysfunctional construct that is the single currency. Monetary union allows some countries to run up debts at the expense of others – go figure. Now Syriza doesn’t want to concede as it’s led by politicians who seek re-election. The external creditors, not least the Germans, similarly won’t give way as that could spark an electoral revolt of their own.
If Greece does get a sweeter deal, involving fewer reforms and more write-offs, there would meanwhile be much hand-rubbing in Spain and Portugal, with other bailed-out governments then expecting better terms on their debts – and their voters up in arms unless such concessions were quickly forthcoming. In Ireland, conversely, teeth would grind, given that Dublin drove through, and voters largely accepted, bail-out and repayment conditions in full, with no half measures.
The overwhelming danger, of course, is that Greece defaults and quits the euro – either by choice, or because Germany insists the ECB finally cuts the credit lines to Greek banks, almost guaranteeing an economic implosion. No one really knows what would then happen. As the ATMs stopped working, savings evaporated and euro-denominated debts disappeared into a legal morass, there could certainly be a wave of democracy-threatening civic unrest in Greece.
Once the Grexit line had been crossed, that would also raise speculation of default elsewhere, causing eurozone sovereign yields to spike. With bond markets shaky across the Western world, the risk of “contagion” and a broader systemic collapse would loom large. I don’t want any of this to happen and I sincerely hope it doesn’t. But anyone with even a rudimentary understanding of economics and financial markets, and an open mind, must now accept it might.
It’s easy to be angry at successive Athens governments and their profligacy with other people’s money. But we mustn’t lose sight of what the Greek people have been through. While the UK and Germany have recovered from the sub-prime crisis, with real GDP now back above 2008 levels, the Greek economy, seven years on, remains 25pc adrift – an economic slump even deeper than America endured during the 1930s Great Depression.
While the eurozone grew by 0.4pc in the first quarter of 2015, Greece contracted 0.2pc, after a 0.4pc drop during the last three months of 2014. Having finally escaped last year, then, Greece is now back in recession, denting hopes of a “growth-led” recovery and bringing the public finances even more sharply into focus.
There are many reasons the eurozone’s recovery remains unconvincing. There are many reasons why the IMF just cut its 2015 US growth forecast to 2.5pc from 3.1pc. But the shadow of Grexit, and the possible fall-out on financial markets everywhere has, for a long-time now, stymied investment across Europe and the broader Western world, helping to curtail any global upswing. And, to think the euro was supposed to be about spreading prosperity and pan-European unity.
The eventual outcome of this Greek tragedy will impact the UK not only because the eurozone remains easily our largest trading partner. How this stand-off is eventually resolved – more fudging, or a bad-tempered and damaging collapse – will also have a big influence on our own debate about membership of the European Union.
Having attracted just 3.1pc of the national vote in the 2010 general election, Ukip took over 13pc last month – a quite astonishing surge in support (even if, due to the vagaries of our electoral system, the party ended up with just a single MP).
One reason behind this sharp rise in Ukip’s backing has been growing public awareness of the euro’s structural weakness and incoherence. This realisation has severely discredited the entire European project, making it far more acceptable for British voters seriously to discuss and countenance leaving the EU.
There are many domestic factors behind the rise of Ukip and euroscepticism in general across the UK – not least discontent over rules on loose border controls.
But it only really became respectable for mainstream politicians to openly consider Brexit back in 2012, once it became clear that Brussels was talking nonsense, the single currency most certainly isn’t “forever” and the eurozone could very easily collapse.
This Greek drama will run and run. The current bout of squabbling over the bail-out repayment has just been extended at least until the end of June. And the much tougher and more explosive negotiation – over broader Greek debt write-offs – has simply been deferred. During the months to come, even if Grexit is avoided, as the rows rumble on, and the related systemic dangers remain, the case of those backing Brexit will be strengthened. That will pile pressure on Prime Minister David Cameron to secure an even better deal for Britain, if he’s to convince the rest of us we should stay in.