Greece Eurozone Exit Is In The Wind. Is it A Harbinger of EU Disintegration Process?
Valentin KATASONOV | 13.01.2015 | WORLD / Europe

Greece Eurozone Exit Is In The Wind. Is it A Harbinger of EU Disintegration Process?

Greek debt – core problem to affect Athens-Brussels relationship

One of the issues to hit the news in early 2015 is the possibility of Greece leaving the eurozone, or, even, the European Union. German weekly Spiegel reported that Chancellor Angela Merkel now believed that the eurozone could cope with Athens leaving the common currency in case the Coalition of the Radical Left (SYRIZA) wins the January 25 parliamentary election. Rejections followed (allegedly Chancellor Merkel said something else) but there is no smoke without fire. The Greece eurozone exit has been in the wind since a long time. On the one hand, it can remedy the eurozone economic situation. On the other hand, the very fact of such a possibility being discussed could be perceived as a harbinger of EU disintegration process about to kick off. There will be mixed consequences for Greek economy in case the conjecture becomes a reality. The core problem to affect the relationship between Greece and the European Union is the Greece’s government debt (see the graphic below): 

Greece and eurozone: Sovereign (general government gross) debt at the end of year







Total, billion euro





Debt to GDP ratio, %





Per capita, thousand euro






Total, billion euro





Debt to GDP ratio, %





Per capita, thousand euro





• Estimates data provided by Greek Ministry of Finance 
Source: Eurostat

The relative amount of Greek sovereign debt by far exceeds other eurozone countries and members of the European Union. As of 2013, Italy, the second largest debtor in eurozone, had the debt equal to 132, 6% of GDP, Portugal was the third with the debt equal to 129, 0% of GDP. According to the estimates of Greek government, the country’s debt was to be 318 billion euro at the end of 2014 but media reported in early 2015 that it went up to 322 billion euro. It’s worth to note that external (or foreign) debt of the eurozone and other EU member-states (the debt includes private and national debt) is hardly ever mentioned. By the way, Greece is far from being the largest external debt holder. By the end of 2012 the Greek external debt was $568, 7 billion or 234% of GDP ($52 thousand per capita). At the very same time the external debt of Great Britain was $10 trillion or 400% of GDP. But, as they say, Quod licet Iovi, non licet bovi or what is permissible for Jove is not permissible for an ox. Greece is not even an ox, it’s rather a scapegoat. In the 2000s it got mired in public and government debts. The global lenders wanted to make this South European country a milking cow. They went too far. The cow could not give milk anymore. Now it’s good only for the role of scapegoat. 

How the Troika – the IMF, the ECB and the European Commission - «rescued» Greece

During a few years world financial circles have been tried to make the Greek «cow» bounce back. In the spring of 2010 the European Union in concert with the International Monetary Fund introduced unprecedented measures, including the loan of €110 billion granted to Greece. It did not work. Then they launched a new bigger aid package equal to €130 billion. Actually a large part of sovereign debt was written off then. The International Monetary Fund and the European Union had to reason it out and find arrangements with the major Greek bonds holders who agreed to «forgive» a part of the debt. It was a fait accompli for minor bonds holders. By the end of 2013 the IMF and Brussels started talks with Athens on the third aid package but the economic situation in Greece did not improve. The government did not fully comply with the conditions put forward by creditors to make the money flows slow down. Greece cannot receive the next €7 billion tranche. The creditors (the big three including the International Monetary Fund, the European Central Bank and the European Commission) tend to believe that the «cow» is not good for milking anymore. 

Disillusionment became overwhelming in Greece too. The country keeps on plunging into the money pit. Neither austerity measures, nor privatization of remaining state property, nor the attempts to attract investors by bringing down taxes – nothing works. Even according to official data, unemployment exceeds 20%. The figure is 40% for the young people. In 2014 around €6 billion (11%) out of €56 budget expenditure was spent to service the public debt. Partly the debt was paid off at the expense of profits received from privatization. But Greece managed to scrape together only €2, 5 billion from this source. Many politicians and people understood that the «debt restructuring» was nothing but a trick. Proportionally the debt was not reduced: over €100 billion were written off while the debt in 2011-2013 decreased only by €52 billion. A half of the written off debt was immediately replaced by new debts to pay off. So called privileged creditors and lenders took no part in the restructuring and writing off. They continue to receive all the money Greece owes to them. For instance, the International Monetary Fund. 

Grexit – a symbol of «pure relationship» between Athens and Brussels

As far back as 2010, Greeks lost hope to find a way out of the dead end as the crisis set in. Those days the first calls for eurozone (and even the European Union) exit were voiced. A new term appeared – Grexit (Greece and exit). They threatened Brussels with the prospect of holding a referendum on leaving the eurozone. The European Union did its best to quell such sentiments. It realized there would be serious implications for the European Union. But today the situation is different in Greece and elsewhere. 

The eurozone exit idea has gained great support inside Greece. Yes, it’ll be hard at first, but he return to drachma (Greek national currency before the euro) would allow adopting independent fiscal and economic policy. Greeks are fed up with control exercised over their country by Washington (the International Monetary Fund), Brussels (the European Commission), Frankfurt (the European Central Bank) and Berlin (the German government calling the shots in the eurozone). 

At the same time the «big three» and Germany are tired of shouldering the problems of Greece – a cow to feed with no prospects for milking in the foreseeable future. According to the opinion of Angela Merkel and Brussels officials, the eurozone has become stronger in the recent two years. Of course, the withdrawal of Greece from the eurozone will have negative consequences, but it won’t be the end. 

Syriza and its economic program

The main provisions of the Syriza economic program envision the withdrawal from the eurozone and return to the national currency – drachma that existed in the days of ancient Hellade to be back in circulation after the country got rid of Turkish yoke in 1832. This measure will allow adopting national fiscal policy, something Greece sacrificed in order to enter the eurozone on January 1, 2001. Then the nationalization of all strategically important enterprises and banks will follow. 

The Syriza leaders understand well that even the restoration of Central Bank’s national status is an imperative, but it’s not enough for implementation of independent national fiscal policy. They propose to introduce capital controls to prevent financial speculators from entering the country. Instead of lowering the taxes as recommended by the IMF and Brussels, they want to raise them and restore the social programs cancelled by the International Monetary Fund. 

As the debt problem exacerbated in recent years Syriza started to study the ways to tackle the issue. It has rejected the traditional recommendations of the International Monetary Fund like privatization of state property. Instead it offered …reparations to be used as an alternative. Syriza raised the issue of the reparations underpaid by Germany to compensate Greece for the WWII losses. True, Greece has received some reparations from Germany. The first tranche was received in late 1940s – early 1950s. Mainly the reparations included industrial products (equipment, machines) for the total sum of 105 deutsche marks (the sum equals around $25 million or €25 billion at current prices). The second tranche of reparations arrived in the 1960s. In 1960, Greece and the Federal Republic of Germany signed an agreement whereby 115 million marks were given to Greek victims of Nazism. The payments were tied to the Greeks’ abandoning any additional claims for individual compensation. In 2013, the National Council for German War Reparations headed in Greece by war veteran Manolis Glezos put the amount of damages at half a trillion euros. In March 2014, Greek President Karolos Papoulias once again demanded that Germany pay reparations for damage inflicted on the country during the war. Greece is claiming €108 billion euro as compensation for damages and €54 billion for loans issued to Nazi Germany by the Bank of Greece and never repaid. The total amount of reparation claims by Greece stands at €162 billion. At current price levels, this equals 5,000-6,000 tons of gold. The sum is enough to repay a half of current debt. 

Syriza vs. world money lenders

The most radical measure offered by Syriza is writing the debt off. At least 50% of it. Once in power the coalition plans to hold talks with the main creditors and bond holders. At first glance, it resembles the restructuring of 2012 but there is a big difference. Back then the process was guided from «top», now it is to be initiated from «bottom» by Greece itself. In June 2012 the center-right New Democracy has won the election. It gave its consent to implement the policy of economic strangulation imposed by Washington and Brussels. Back then Syriza raised the issue of writing the debt off or at least imposing a moratorium on payments. Vangelis Apostolou, an MP and a Syriza activist, said before the 2012 parliamentary election that the party stood for debt restructuring. Syriza believes that a large part of the sum is the result of illegal international operations. The party calls for establishing a special international commission to assess the state of Greek economy. If Greece agrees to repay what is left, then a moratorium on interest payments will take effect for the period of three-four years. Apostolou said it was the only way to carry out the obligations before people and the only acceptable solution to make Greece remain in the eurozone. Then the amount of payments would be pegged to the economic growth indicators. The priority would be social needs, not interest payments. Greece would pay if it can and not pay if it can’t. 

According to other statements coming from Syriza members, the moratorium and restructuring are not the only viable options on the table. A sovereign debt default is not excluded. According to Greek politicians, it’s not the first time - the country saw defaults on government debts in 1898 and 1932. Actually there is only a relative difference between a moratorium, a debt restructuring and a default. It all boils down to warning about the upcoming default. Restructuring may imply a temporary suspension (grace period) of interest or principal repayments. 

The most resolute Syriza representatives say if Greece fails to reach an agreement with creditors and money lenders on restructuring then a new government would take a unilateral decision on moratorium and partial writing off the debt. 

In early January Alexis Tsipras, the Syriza party leader, said, «What we demand is a European conference, to tackle this European problem together, and there cannot be a solution without writing off a large part of the debt, a moratorium on repayments and a growth clause.» He said coordinated technical measures could be used to avoid a solution at the expense of Europeans. Syriza vows to write down most of the nominal value of Greece’s debt once elected. «That’s what was done for Germany in 1953, it should be done for Greece in 2015,» Tsipras said in a speech delivered this January. He added that an agreement will include an amendment to make debt payments tied to the indicators of economic growth, not state budget surplus. The party will ask for a grace period or a moratorium to accumulate money for economic development and restructuring. 

* * *

Today the legendary Manolis Glezos is the informal leader of Syriza. On May 30, 1941, he and his friend climbed on the Acropolis and tore down the swastika, which had been there since April 27, 1941, when the Nazi forces had entered Athens. Before the 2012 election said that «all the agreements concluded with loan sharks, not partners or creditors, but loan sharks – as that’s what they are – will be nullified...We’ll say from the very start we don’t owe you anything». Today he repeats the same thing. Greece owes them nothing. Manolis Glezos hopes to see his party win the election and tear up the shackling agreements imposed on Greece by the European Union and the International Monetary Fund. 

There is some similarity between the events in Greece and Russia. Before the New Year Member of Russian State Duma Committee on Budget and Taxes Yevgeny Feodorov had prepared amendments to the Civil Code providing for the freezing of Russian debt servicing in force majeure circumstances. The list of conditions to justify the measure includes the economic sanctions that impede the functioning of Russian companies and organizations making impossible to service foreign debts. 

Many experts believe the introduction of such measures would be timely. It will allow to introduce a moratorium on foreign debts repayments. No doubt, it would be expedient for Russia to take a page out of the Greek book and see what it’s like to declare a moratorium on sovereign debt payments. It’ll be possible if the Syriza coalition wins in Greece on January 25.