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The Eurozone crisis is as much a political problem as it is an economic one

17 February 2015

1:05 PM

17 February 2015

1:05 PM

Veterans of Eurozone crisis summits, hoping for another nail-biting drama, had queued to get ringside seats. But yesterday’s meeting over Greece with Eurozone Finance Ministers ended without result. And you shouldn’t be surprised. We’ve been here many times before – Eurozone committees keep minutes but lose hours – and this was not a meeting during which decisions were to be taken.

While some Eurozone watchers have convinced themselves that there is now a new script for Greece’s relation with its Eurozone creditors, no Eurozone government but the Greek share that view. It’s not just that other capitals are hostile to Greece’s own game plan of forcing other governments to make a new decision about its debt terms. The Syriza government has put down a challenge to the political compact of the Eurozone crisis. And that compact is not just about holding the battered Eurozone together, but also to keep reforming parties in government.

While Alexis Tsipras and Yanis Varoufakis present Greece as an exceptional case, other leaders fear they will be casualties in Greece’s quest for a fiscal quarantine. A few years from now, their faces will no longer be on the family photos of EU summits.

But Europe’s new populists, they will all be there. Beppe Grillo shoulder-to-shoulder with Alexis Tsipras. Spain’s Pablo Iglesias looking a bit awkward as he stands next to a smiling Marine Le Pen. Timo Soini, Finland’s vice Premier, shaking hands with his ditto in the Netherlands, Geert Wilders. You get the gist.

A good part of the Eurozone commentariat makes the mistake of treating Eurozone crisis policy as a matter of economics. But the euro has been a political construction ever since its birth. Crisis responses were not midwifed at academic seminars; economic problems were defined, as were the solutions, by making hard political choices about the balance between democratic politics and the desire to keep the euro together. It is easy to feel pity for Greece or see why Greece wants to effect a change. But a radical overhaul of Greece’s debt and fiscal conditions won’t happen as long as the country wants to stay in the euro.

Greece has a few days to decide whether it wants a ‘technical extension’ of the bailout programme – or if it wants to go it alone. It is pretty obvious that Greece has no other choice than to acquiesce to the demands of other Eurozone countries of a technical extension. The alternative would be economic suicide. The Greek government simply doesn’t have the money to make it through the spring. Departure from the bailout programme would unleash far greater market turbulence, throwing Greek banks (with their already stressed funding) into an acute crisis.

Greece can wring some debt relief from the hands of Angela Merkel and other leaders. However, it won’t amount to much – and the process to get there will not follow Athens’ manuscript. A few more weeks of Syriza’s fiscal diplomacy could risk losing it all.

Fredrik Erixon is a Swedish economist and writer. He is the Director of the European Centre for International Political Economy (ECIPE)

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