The unpredictability of life often leaves us bewildered. We chase after goals with youthful enthusiasm, believing we are on the right path. Yet, despite our meticulous planning and ambitious dreams, the outcomes are frequently unexpected. This reality is mirrored in both the nuances of life and the larger machinations of geopolitical endeavors.
In the wake of World War II, European countries yearned for greater integration. The founders of the European Union envisioned a continent where a unified market and shared economic fortunes would foster peace and cooperation. Achieving this vision required decades of dedicated effort.
The assembly at The Hague in 1948 laid the foundation for this dream. Initiatives like the European Movement International and the College of Europe were established to cultivate a generation of leaders who would further this vision. Over time, various treaties and unions were put in place to strengthen this framework.
Finally, in 1993, the European Union came into existence, sparking hope and optimism across the continent. It signaled the beginning of a new era.
What Could Possibly Go Wrong?
With this unity, Europe was poised to reclaim its role as a central player on the global stage. Instead of engaging in conflict, countries were set to collaborate for mutual prosperity. But what unforeseen challenges lay ahead?
For a decade, the EU appeared to be a triumph. Nations worked in harmony, with political and economic integration seemingly uplifting smaller, financially weaker members. Greek debt yields fell to levels close to German bonds, and the economy thrived. However, this apparent success was fueled more by easy credit than by sound investment.
After the formation of the Eurozone, lenders collectively underestimated risk, mistakenly believing that Germany would bail out other EU nations in case of default. This grave miscalculation led Greece and other vulnerable countries to borrow excessively, accumulating debts they could never hope to repay. Now, Europe finds itself in a quandary trying to address this crisis.
Looming Greek Default is the IMF’s Problem
As 20th-century oil tycoon J. Paul Getty once quipped, “If you owe the bank $100, that’s your problem. If you owe the bank $100 million, that’s the bank’s problem.” This adage rings especially true today.
Currently, Greece faces a daunting €1.6 billion ($1.82 billion) payment due to the International Monetary Fund (IMF) at the end of June. According to Greece’s chief negotiator, Euclid Tsakalotos, “we haven’t got the money to pay the IMF at the end of this month.” Clearly, the burden lies primarily with the IMF in this scenario.
Historically, defaulting is almost ingrained in Greece’s national identity. Since gaining independence from the Ottoman Empire in 1832, Greece has faced numerous defaults, spending nearly 50 percent of its time in modern governance in default. No politician has come into power without overpromising and underdelivering.
If Greece were outside the EU, it could simply default on its debts or inflate its currency. However, being part of the EU means that such choices are no longer solely in Greece’s hands. Instead, they rest with a consortium of technocrats in Brussels, who convene with great ceremony to propose solutions to the Greek debt issue. Typically, their remedies involve extending further credit in exchange for increased austerity measures.
This pattern has persisted since 2011, yielding no real solutions. Instead, it merely defers the crisis, compounding the problem. Greece finds itself ensnared in a prolonged, slow-motion default, battling through a relentless cycle of austerity measures intertwined with mounting debt.
Greek Prime Minister Alexis Tsipras declared, “I and the government will assume the responsibility of saying the big ‘no’ to the continuation of a disastrous policy for the Greek people.” We’ll soon discover if he follows through.
Sincerely,
MN Gordon
for Economic Prism
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