In recent days the question of Greece’s debt has taken over the headlines in Europe, especially in the economic news. Greece’s leaders have toured many important capitals of Europe to seek support for a reduction of national debt. Despite some encouraging noises from Rome and Paris, Berlin has been unequivocal, basically saying that a change of government changes nothing.
Yanis Varoufakis, the cool, motorbike riding, former professor of economics, and now Finance Minister of Greece begs to differ. “Europe can’t say that elections change nothing.”
But does anything change? Can a country change its position after making international agreements?
It’s a good question and one that goes to the heart of what it means to live in a democratic society.
If a country makes agreements with other countries and institutions are those agreements still valid when the government changes? There must be hundreds of international treaties in force that prove that this is exactly the case. Every time there is a change of government, countries don’t have to re-ratify treaties such as the Nuclear Non-Proliferation Treaty (NPT), and other instruments of international law.
This applies to all such agreements between countries: the Treaty of Rome, for instance which brought into life the European Economic Community which eventually transformed over subsequent treaties into the European Union. All of these remain in place upon changes of government.
Many of these treaties, however, also have clauses and mechanisms for withdrawing. North Korea famously walked out of the NPT in order to pursue their own nuclear arsenal.
So, can Greece validly seek to negotiate its national debt?
The answer is, of course, that it can. Varoufakis is right, because the voice of the people must be heard.
The Greek population has overwhelmingly, in accordance with the Greek democratic process, voted for an end to austerity and for an end to the agreement with the “troika” of institutions that enforced austerity.
Greece has every right to negotiate because agreements are nothing more than the will of the elected representatives (in those countries that have them) or autocrats of the people, written on paper in a moment of time. And ultimately contracts or treaties are just a written statement of actions or processes that will be followed for the period of time in which they are useful.
Laws are repealed and changed all the time in different situations because they no longer serve the purpose they were written for.
In Greece’s case it is clear that the agreements made with Greece’s creditors don’t work. Greek GDP has shrunk by 25% over 5 years, unemployment affects 50% of young people, suicide rates have never been higher and Greece is no more able to repay the outstanding debts today than 5 years ago. In fact the situation is worse because of a more decimated society where most talented Greeks who could contribute to the development of an economically vibrant society have emigrated and maybe will never return.
The Greek Economy will take years to recover unless extraordinary measures are taken now to relieve the situation.
Such measures need to include; the freezing of the debt and the accumulating interest; a review of the debt to ensure that it has been incurred for valid reasons and is not just money that has gone from the banks directly into the pockets of the previous regime’s politicians and corrupt businessmen; and a massive investment into Greek industries that can lead to small and medium businesses once more flourishing and providing good quality employment opportunities for all.
If Germany is not prepared to accept that the game has changed and that the people of Greece will no longer accept the treatment they have received then this forces Athens to take the nuclear option and withdraw from the Euro. Syriza leaders will prefer that the Eurozone kicks Greece out of the club rather than Greece having to walk out because there would be a huge negative psychological effect of walking away given that 70% of Greeks wish to stay in the Euro.
A comparison can be drawn with Argentina in recent times in this respect. For years Argentina pegged its currency to the US dollar leading to great macro-economic figures but a situation impossible to maintain. In one moment the peso had to de-couple from the dollar. The currency lost 70% of its value over night and the impact on those with savings was drastic. The banks loaded all their dollar bills into trucks, drove them to the airport and flew them out of the country. Argentina went through hell for a couple of years. Many people died.
Yet Argentina recovered and within a few years had repaid its IMF loans. A government is now in place which has been able to drastically improve the situation for the population. The wealthy, and the media that they own, constantly complain but the majority of people who vote in elections are delighted, which is why they keep on voting for anti-austerity.
Greece may have to follow the same path. It’s not a nice path in the short term but in Greece the situation is already much worse that it was in Argentina, people are already dying! Yet Syriza has an impressive network of social support already in place that is providing help to the most vulnerable.
So if Germany refuses to listen then they will force a Euro exit on Greece and it doesn’t take a genius to see that Portugal, Spain and probably Ireland and Italy will have to follow. The Euro as a currency will be destroyed and no one will trust it ever again.
So Mr Schäuble and Mrs Merkel should be very careful how they treat Greece in the next few weeks! Because if they can’t find an agreement that works for all the people in Europe and not just the 1% they will surely find themselves with a revolt they never imagined possible.
