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GREXIT and the sovereign crisis of trust: why the Greeks should not accept the German terms of austerity

Greeks should not accept Germany's austerity measures but should remain in the euro, and ultimately seek a federal EU. This is the only way to end the sovereign debt crisis and restore EU trust, solidarity and collective responsibility.

Sarah Stefanutti
13 June 2012

If it does not abide by its programme of economic reforms and austerity measures, Greece is openly threatened with expulsion from the euro. The next round of elections scheduled for June 17 is crucial, as Greek voters will be de facto called to decide upon whether or not to leave the euro and with that, the fate of the eurozone and the European project as a whole will be determined.

For Greece, the options are as follows:

Staying in the euro by accepting the austerity pact as it is

Exiting the eurozone by rejecting the austerity measures, and

Remaining in the euro by renegotiating the austerity prescriptions.

But what are the effects of austerity on the Greeks? Prolonged austerity and reduction of government spending have caused the Greek economy to stagnate. Job losses along with pension and wages cuts have created a poverty crisis, with the emergence of a new class of urban poor: 1/3 of Greeks live beneath the poverty line, 20,000 Greeks in Athens were made homeless over the past year, over a 100,000 companies went bankrupt in the last year and some 50% of young people are currently unemployed. In the past two years the suicide rates have tripled. So the grim list of the austerity figures goes.

Should Greece follow the Troika (EC, IMF, ECB) diktat or rather seek exit? Or, is it possible for the Greeks to renegotiate the terms of the fiscal compact so as to avoid choking on the noose which hangs around their necks? My claim is that the austerity pact, as it is now, is fundamentally illiberal, anti-democratic and exploitative and reflects the deepening of a sovereign crisis of trust in the EU, involving financial markets, sovereign states and their demoi.

Two questions sum up a big moral dilemma: why should German taxpayers bail out profligate Greece (is Greece actually not responsible for its own conduct?) and why should the Greeks, in turn, accept the terms of the ‘German bailout’, even if those measures infringe on such fundamental values as their self-respect, freedom and equality?

One can think of different reasons why Germany should show more solidarity towards the Greeks. For instance, some economists think that, if Greece is not saved, a domino effect will hit the eurozone: due to the high level of structural interconnectedness between the eurozone countries, if Greece exits the euro, a deeper crisis of confidence will spread over the other weak economies of the eurozone, ultimately leading to the disintegration of the euro and of Europe, which in turn would leave everybody worse off, Germans included. This pro-solidarity argument is rather utilitarian and ultimately tailored to feed Germany’s self-interest. Nevertheless, the empirical assumption describing the eurozone as a holistic organism, in which the single parts contribute to the standing of the whole, is essentially raised by any reasonable normative solution to the crisis.

Building on this assumption, one may also think of an argument in terms of political equality: we, the Europeans, are part of a transnational political community that is the EU. If every nation-state wants to participate as an equal in the politics of the community, without being subjected to the arbitrary imperium of the strongest nation, the conditions of equality between nation-states must be guaranteed: thus redistribution from richer to poorer countries is required.

Without venturing deeper into these arguments, keep them in mind, as I argue why the Greeks should not accept the German terms of austerity as they are now.

Based on the fact that they have generated a poverty crisis, the austerity measures imposed on Greece are fundamentally illiberal in the sense that they are undermining the Greek people's:

Self-respect. The implementation of the austerity measures represents the enactment of a ubiquitous master narrative opposing southern European untrustworthy and undeserving countries versus northern virtuous and deserving nations.

Freedom. Intended as the political freedom of a people to decide for themselves but also as the economic freedom from need.

Equality. The impact of poverty in Greece is affecting individual autonomy.

Moreover, at present, the austerity measures imposed on Greece lack any democratic form of legitimacy and thus represent, instead, the imperium of the strong northern nations (together with the financial markets) over the weak ones.

Obviously, in the next round of elections the Greeks could vote against austerity and in favour of exit from the euro, hence apparently restoring their lost sovereignty. In this way, the illegitimacy and illiberal character of the austerity reforms would be exposed for what they are.  However, this is rather like presenting a patient affected by lung cancer with the options of either continuing to be treated with the same unsuccessful medicine, or choosing to cease treatment by exiting the hospital, exposing the patient to lethal risk. Wouldn't it be preferable for the patient's well-being to be presented with the option of simply changing the cure?

My position here is that a renegotiation of the austerity pact – lessening the austerity demands, focusing on economic growth and enabling substantial mechanisms of solidarity and redistribution of resources to flow from richer to poorer countries in the eurozone – would be the most desirable solution for Greece and the EU overall.

However, one may well argue that mechanisms of solidarity, such as the eurobonds or the adoption of some form of mutualisation of the debt, require trust between the parties, hence among the eurozone countries. The doctor has to trust the patient affected by lung cancer that she will not secretly start smoking again. The issue here is that Germany does not trust Greece's commitment to the virtuous path, although the Greeks have shown strong commitments in recent months to working towards this goal.

However, how can a party become more trustworthy? A party can be compelled to be more trustworthy by institutionalizing mechanisms of trust so that if one party breaks the trust then he will incur sanctions. However, to make those sanctions legitimate, those affected by them should also have a say in how to build them.

This is certainly no issue to be solved in the upcoming Greek elections, but a long term problem of how the EU is to be imagined. In this respect, I am keen to argue in favour of a fully federal and democratic United States of Europe as the most desirable way of settling the Greek and the EU existential crisis in the long term. Stronger political unity has to determine a shared economic policy and the former has to be democratically constructed.

Finally, one can say that the Greek ballot raises broader questions on trust, solidarity and collective responsibility within the EU and ultimately impels those of us who are Europeans to think of what institutional form the EU should embrace in order to emerge from its existential crisis and to effectively re-establish those bonds of trust between peoples, political institutions and financial markets that are necessary for the well functioning of a democratic Europe. A democratic Europe of the peoples may seem a utopian goal, but this crisis could provide the impetus for constructing that way forward.

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