Andreas Whittam Smith: The Greeks have spoken and the eurozone's fate is sealed

Creditor countries have begun to see that the solutions would be impossible to implement

Share

When the history of the slow collapse of the eurozone comes to be written, what happened in Athens last Sunday evening will probably be seen as one of the turning points. For the explosion of violence that took place while the Greek parliament was debating whether to accept draconian terms for securing a €130bn bailout wasn't just another demonstration. More than 80,000 turned out and among them were many middle-class people.

Moreover, the police launched a violent response soon after protesters had arrived. The forces of law and order weren't going to allow this to be a peaceful demonstration. The sounds of the struggle could be clearly heard within the parliament. Among the crowd was even a wartime resistance hero, Manolis Glezos. He is famous for having torn down the Nazi flag from the Acropolis following the German invasion in April 1941. Now 89 years old, he asked whether it was right to impose these measures "by tear gas".

The various demands made on behalf of the strong eurozone countries by officials from the European Commission, the International Monetary Fund and the European Central Bank are undoubtedly questionable. Take the notion of a 20 per cent reduction in the minimum wage. To international civil servants working through their files in Brussels, Washington and Frankfurt, this may seem like a perfectly good idea. Greece's costs are high compared with its competitors, so why not cut the minimum wage? Yes, except that had Greece not entered the eurozone and given up the drachma, it would have been able to reduce its prices vis-à-vis its neighbours by devaluing its currency. Everybody would have shared the pain. But in the eurozone, it seems, the poor alone must bear the burden of such adjustments.

Then there is the demand that numerous state-owned enterprises should be sold off to the highest bidder, who would often, it was assumed, be foreign-based. The proceeds would be used to pay off part of the Government's debts. In normal circumstances, this would be a perfectly good scheme. Britain's own privatisation programme, carried out 25 years ago, was a great success. But now, after a reassessment of obstacles to investing in Greece, the target for privatisation revenues has been revised downwards from €50bn to €15bn by 2015.

Why should this scaling back of expectations have been necessary? Doubtless some of the assets were not in good shape. But there is another reason that may have eluded the experts when they first began to devise the Greek cure. No foreigner would want to buy Greek assets when there is the remotest chance that the country would leave the euro and replace it with a heavily discounted drachma. A great part of the value of any investment could be lost. To take a domestic example, if you found a lovely holiday cottage for sale at an attractive price on a Greek Island, would you buy it in the present circumstances? I know I wouldn't.

Finally, there is the demand that the leaders of the main political parties must promise to back the deal, regardless of the outcome of the elections expected in April. What the requirement must surely mean is that the main parties will put the terms to the Greek electorate and ask for support to carry them out. The result is unlikely to be better than a weary acceptance, accompanied by low turnout. For it must be hard to elect the very political parties that have, through the years, led Greece into the abyss.

The importance of Sunday evening's riots in Athens arises from the negative impact they have had on sentiment in the leading creditor countries, such as Germany and the Netherlands. Government ministers in the two countries have finally begun to see that the purely bureaucratic solutions proposed by their officials and their counterparts in the international financial institutions would be impossible to put into practice as designed. Greek leaders may put their signatures to the relevant documents, but the Greek people are very far from being persuaded to go along with the plans. More effective than riots would be passive resistance.

This has led for the first time to a willingness by European leaders seriously to contemplate a Greek default and, with it, the country's exit from the euro. There are two matters here to consider: how would financial markets react and what would be the consequences for Greece herself? Under the first heading comes assessing whether bond holders would put other weaker members of the eurozone under renewed pressure, countries such as Italy, Spain, Portugal and Ireland. There is also the question of the solvency of banks that hold considerable amounts of Greek debt. Would they themselves require bailing out by their national authorities? On these issues, opinion has become more sanguine. The firewalls of the international monetary system have been considerably strengthened during the past two years. And banks themselves have increased their reserves against losses.

What default would mean for the Greeks themselves is that the government might not be able to pay pensions or salaries for approximately two months. All debts denominated in euros would have to be renegotiated. And as the new currency depreciated, prices in domestic markets would rise sharply. In sum, the country would first suffer financial chaos, and then a permanent loss of spending power. It would not be nice.

The Greek finance minister, Evangelos Venizelos, has quickly detected the change of atmosphere. He said yesterday that some eurozone countries were "playing with fire", and added: "There are many in the eurozone who don't want us any more." That is precisely what the riots in Athens on Sunday evening achieved.

At the same time, where power really lies becomes a little bit clearer. We see that whereas financial markets have all the influence in the early stages of a sovereign debt crisis, aided and abetted by the credit rating agencies, as Britain has just been reminded, when it come to solutions, there is a second strong force. This is public opinion magnified by street protest. While the politicians and their advisers give the impression of being in charge, they are not really. The financial markets and the street: when aroused, these are our masters.

a.whittamsmith@independent.co.uk

React Now

  • Get to the point
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
iJobs Job Widget
iJobs General

Recruitment Genius: Installation and Service / Security Engineer

£22000 - £40000 per annum: Recruitment Genius: This company is part of a Group...

Recruitment Genius: Service Charge Accounts Assistant

£16000 - £18000 per annum: Recruitment Genius: Are you a a young, dynamic pers...

Cancer Research UK: Corporate Partnerships Volunteer Events Coordinator – London

Voluntary: Cancer Research UK: We’re looking for someone to support our award ...

Ashdown Group: Head of IT - Hertfordshire - £90,000

£70000 - £90000 per annum + bonus + car allowance + benefits: Ashdown Group: H...

Day In a Page

Read Next
 

Errors & Omissions: Outgunned by a lack of military knowledge

Guy Keleny
Ukip leader Nigel Farage in Tiny Tim’s tea shop while canvassing in Rochester this week  

General Election 2015: What on earth happened to Ukip?

Matthew Norman
General Election 2015: Chuka Umunna on the benefits of immigration, humility – and his leader Ed Miliband

Chuka Umunna: A virus of racism runs through Ukip

The shadow business secretary on the benefits of immigration, humility – and his leader Ed Miliband
Yemen crisis: This exotic war will soon become Europe's problem

Yemen's exotic war will soon affect Europe

Terrorism and boatloads of desperate migrants will be the outcome of the Saudi air campaign, says Patrick Cockburn
Marginal Streets project aims to document voters in the run-up to the General Election

Marginal Streets project documents voters

Independent photographers Joseph Fox and Orlando Gili are uploading two portraits of constituents to their website for each day of the campaign
Game of Thrones: Visit the real-life kingdom of Westeros to see where violent history ends and telly tourism begins

The real-life kingdom of Westeros

Is there something a little uncomfortable about Game of Thrones shooting in Northern Ireland?
How to survive a social-media mauling, by the tough women of Twitter

How to survive a Twitter mauling

Mary Beard, Caroline Criado-Perez, Louise Mensch, Bunny La Roche and Courtney Barrasford reveal how to trounce the trolls
Gallipoli centenary: At dawn, the young remember the young who perished in one of the First World War's bloodiest battles

At dawn, the young remember the young

A century ago, soldiers of the Empire – many no more than boys – spilt on to Gallipoli’s beaches. On this 100th Anzac Day, there are personal, poetic tributes to their sacrifice
Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves

Follow the money as never before

Dissent is slowly building against the billions spent on presidential campaigns – even among politicians themselves, reports Rupert Cornwell
Samuel West interview: The actor and director on austerity, unionisation, and not mentioning his famous parents

Samuel West interview

The actor and director on austerity, unionisation, and not mentioning his famous parents
General Election 2015: Imagine if the leading political parties were fashion labels

Imagine if the leading political parties were fashion labels

Fashion editor, Alexander Fury, on what the leaders' appearances tell us about them
Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

Phumzile Mlambo-Ngcuka: Home can be the unsafest place for women

The architect of the HeForShe movement and head of UN Women on the world's failure to combat domestic violence
Public relations as 'art'? Surely not

Confessions of a former PR man

The 'art' of public relations is being celebrated by the V&A museum, triggering some happy memories for DJ Taylor
Bill Granger recipes: Our chef succumbs to his sugar cravings with super-luxurious sweet treats

Bill Granger's luxurious sweet treats

Our chef loves to stop for 30 minutes to catch up on the day's gossip, while nibbling on something sweet
London Marathon 2015: Paula Radcliffe and the mother of all goodbyes

The mother of all goodbyes

Paula Radcliffe's farewell to the London Marathon will be a family affair
Everton vs Manchester United: Steven Naismith demands 'better' if Toffees are to upset the odds against United

Steven Naismith: 'We know we must do better'

The Everton forward explains the reasons behind club's decline this season
Arsenal vs Chelsea: Praise to Arsene Wenger for having the courage of his convictions

Michael Calvin's Last Word

Praise to Wenger for having the courage of his convictions