As everybody has by now noticed, Greece and the ECB/EU are playing a game of chicken. If the opinion polls are correct, the anti-austerity vote will rise in the second set of Greek elections in June. A failure to keep to the cuts schedule would mean the next instalment of bailout money won’t arrive, Greece defaults, fear of a Euro exit leads to the banks collapsing (if that hasn’t already happened by then) and Greece then is forced to create a new currency to pay its civil servants and pensioners, in effect leaving the Euro.
Greece faces short term ruin under all plausible scenarios. The optimistic view is that after leaving the Euro, which would lead to a massive devaluation, it may potentially climb back to long term GDP growth and full employment, based on a big increase in British tourists, diverted from Spain and Turkey by the cheap prices that would result from the devaluation. The tourists would get cheap food and drink, nice weather and a ringside seat as they watch the economy collapse.
Meanwhile, a fascinating article on Bloomberg yesterday by The Economist’s Tim Judah provides the bigger picture. He argues that Greece is becoming again what it always was, a Balkan state. And at the same time the other Balkan states such as Serbia, Montenegro, Macedonia and Albania are inching towards joining Europe – meaning the EU. Judah notes the fall in the far-right vote in Serbian elections. The start of the Ratko Mladić war crimes trial emphasises that Serbia has removed another barrier to EU membership. It may take a while but there are clear economic benefits to these countries joining the EU, though not necessarily adopting the Euro (if it’s still there). Montenegro uses the Euro unofficially, and benefits from the stability that brings compared with a questionable currency of its own.
This divergence in countries’ paths is all the more remarkable when we reflect on the wars arising from the death of Yugoslavia 20 years ago. Judah says that Greece was sympathetic to Serbia, because of a shared religious faith. The Moslem peoples of the region naturally were supported by Turkey, which raised the danger of a wider conflict between those traditional foes, Greece and Turkey. Greece has a long standing antagonism with Albania and Macedonia over territory and the very name Macedonia (a region of Greece but also a country). Now all of these countries are moving west, as it were, while Greece faces a return to being outside the European family, moving east. Judah argues it should never have been allowed into the EU, let alone the Euro, and this was mainly a matter of politics at the time. With Turkey in Nato and increasingly an increasingly modern economy (though with little possibility of EU membership after a firm “non” by the new French President), Greece has no geopolitical value to the west any more and is, in effect, being cut loose.