A man passes by an anti-austerity banner reading "NO" in front of the Greek parliament in Athens. Photo: Aris Messinis

Greece’s capitulation reveals deep conflicts within Eurozone

  • July 12, 2015

Capitalism & Crisis

Rather than resolving the euro crisis, Tsipras’ unexpected U-turn has revealed deep conflicts among the creditors, who now fight over how to respond.

This article was originally written for teleSUR English.

For the past two weeks, day-to-day life in Greece has been suspended on a political pendulum swinging violently from one extreme to the other. Between bank runs and mass mobilizations, heroic victories and inglorious defeats, financial blackmail and popular defiance, the future of this small country — and of the entire currency union of which it is a part — still hangs in the balance.

It has been an emotional roller coaster throughout, with the collective heartbeat in Athens oscillating wildly between hope and desperation; between the tears of joy at Syntagma on the night of the referendum victory and the cries of agony resounding from the same square just days later, as prime minister Tsipras and his Syriza-led government prepared to capitulate. In the end, the overwhelming sensation is one of confusion and disbelief. What just happened? Was that real?

Taken aback by the aggressive response and sheer firepower of the creditors, and faced with an impossible choice between financial collapse and disorderly Grexit on the one hand and a humiliating climbdown on the other, Tsipras eventually found himself compelled by greater forces to choose the latter. Early on Saturday morning, the prime minister successfully passed a new bailout plan through Parliament that in many respects is even more punitive than the deal he had just gotten 61% of Greeks to reject in the referendum.

Still, as was to be expected, even Syriza’s sudden surrender has proven to be far from the end of this seemingly never-ending drama. In fact, Greece’s unexpected capitulation appears to have thrown the Eurozone into even greater disarray: now the creditors can’t even agree amongst themselves anymore!

On the one hand, a group of hardliners led by the German finance minister Wolfgang Schäuble are adamant on forcing Greece out of the Eurozone. Schäuble and his minions, it seems — including the Dutch, the Austrians, the Finns and some of the newer Eurozone member states in Eastern Europe — are not the least bit interested in a Greek surrender within the Eurozone; what they want is its wholesale expulsion from it, if only to set an example for anyone else who might ever entertain such “irresponsible” ideas as Syriza.

On the other side of this deepening rift stand the French and the Italians, who are both deeply concerned about the repercussions of a potential Grexit: the French because this would scupper their ambitions to turn the Eurozone into a more flexible and redistributive fiscal union, and the Italians because they fear they could be next. If Schäuble were to succeed in pushing out the Greeks, they reason, the Germans would have a much easier time entrenching the austerian nature of the Eurozone as a whole.

Schäuble’s extreme stance was revealed on Saturday in a German finance ministry proposal for a temporary Grexit of five years; a poorly thought-out plan that appears to confirm the suspicions of Greece’s former finance minister Yanis Varoufakis, who just wrote that, “based on months of negotiation, my conviction is that the German finance minister wants Greece to be pushed out of the single currency to put the fear of God into the French and have them accept his model of a disciplinarian eurozone.”

This is precisely why French finance minister Michel Sapin sent a small army of French technocrats to Athens last week to help Tsipras draft his declaration of defeat. It is also why Italian prime minister Matteo Renzi will tell his German counterpart on Sunday that “enough is enough” and the time has come to stop humiliating the Greeks. Clearly the social democrats in Paris and Rome care little for their leftist cousins in Athens; they are merely trying to soften the edges of Schäuble’s fiscal fundamentalism to secure their own survival within an increasingly inflexible monetary union.

At the same time, the French and Italians have found themselves backed from the outside by the Obama administration, which fears the geopolitical consequences of a Grexit, and by the IMF, whose economists have finally recognized that Greece’s debts are unsustainable. Both the Fund and the US government now argue that Greece needs debt relief as part of any future program. This pitches the US and the IMF directly against Schäuble and his minions, who have fiercely resisted debt restructuring for fear of stoking moral hazard and producing a domestic electoral backlash.

To add to the fray, rumors are doing the rounds of an open clash between Schäuble and Mario Draghi at Saturday’s Eurogroup meeting, with the German finance minister reportedly interrupting the European Central Bank director at one point, shouting at the Italian: “do you take me for a fool?!”

All of this has left little Greece at the heart of an epic battle with geostrategic and financial implications that reach far beyond the debate about austerity or the question of the country’s towering debt load. Syriza’s sudden withdrawal after months of brinkmanship has ended up exploding deep-seated rifts within the creditor camp, revealing a set of seemingly insurmountable contradictions within the Eurozone as a whole.

In the process, Greece itself has once again been reduced to a pawn in the strategic maneuvers of the great powers, while the future of the country and the lives of its citizens continue to hang in the balance.

The multiple ironies produced by this decisive moment in the crisis should not be lost on anyone. While Syriza’s capitulation would normally have been a positive development for the creditors, it has actually produced major infighting among them. It is already widening and intensifying Franco-German divisions; endangering Merkel’s political legacy; threatening to produce the fall of the Finnish government; and dealing a major PR blow to the European project by revealing the violently anti-democratic nature of the single currency to ordinary citizens in Greece and elsewhere.

At the time of writing, it is far from clear how this drama will end. Still, one thing is certain: the European Monetary Union is a mortally wounded animal preying blindly on its own tail. The Greek debt saga is merely the signal crisis of its eventual demise; even if it is eventually “resolved”, more intense conflicts are undoubtedly to come. Whether Greece survives the week within the Eurozone or not, this much is clear: the European project is eating itself up from within — and there is very little Schäuble or Sapin can do to stop that.

Help sustain ROAR Magazine

Print issues released quarterly.

Jerome Roos

Jerome Roos is the founder and editor of ROAR Magazine, and a postdoctoral researcher in political economy at the University of Cambridge. For more on his research and writings, visit jeromeroos.com.

More >

Further reading


The Rule of Finance

Read now

Magazine — Issue 3