European Monetary Union: What manner of a union?

The eurozone is fit only for strong and highly competitive economies, not for the likes of Greece, Portugal and Spain.

Greece - EU
Germany's default in the 1930s pales in comparison with the debt problems Greece is experiencing today, writes Polychroniou [Reuters]

Greece is just wrapping up its third bailout agreement in five years, with its parliament becoming once again an appendage of the troika of the European Commission, the International Monetary Fund and the European Central Bank.

As is well-known, German chancellor Angela Merkel and her finance minister, Wolfgang Schaeuble, “blackmailed” Greece during the Euro Summit of July 12 into accepting a humiliating agreement for a new bailout package or to crash out of the eurozone.

Indeed, Greek Prime Minister Alexis Tsipras was subjected to 17 hours of psychological “waterboarding”, as one EU official put it, so the term “blackmail” is probably quite fitting.

Europe’s new hegemon

The new bailout package, far harsher than the two previous ones, consists of new recessionary economic measures, including a higher value added tax (VAT) rate and new tax increases, additional pension cutbacks, new reforms to liberalise all “closed-shop professions”, and demands for asset-stripping the state to ensure the payment of debts.

All state-owned assets (public goods, utilities, ports, airports, etc) will be transferred into a special trust fund supervised by the EU.

The new bailout agreement makes no mention of a debt relief, thereby ensuring that the Greek debt level (currently at 177 percent of the GDP) will continue to climb.

 Greeks: How did we lose our way?

In other words, Germany, as Europe’s new hegemon, is treating Greece as a debt colony, and the EU is bent on the economic strangle of Greece.

The mafia-like stance of Germany reveals that the EU is neither democratic, nor does it care about solidarity, dignity and people’s wellbeing.

Indeed, what kind of a union is the eurozone when its core leaders aim to punish a nation for a leftist into office, even if it has an utterly incompetent government?

What sort of a union is the EU that allows banks to be rescued at the expense of entire nations, but in turn refuses to consider providing sovereign debt relief?

A state of peonage

Today’s German leaders seem to have very short memory.

Germany was last century’s worst debtor nation.

The country’s default in the 1930s pales in comparison with the debt problems Greece is experiencing today.

Greece and the other countries in the periphery of the eurozone should expect austerity to reign supreme in economic policy-making for decades to come.


After World War II, Germany’s external debt was largely cancelled by the 1953 London Agreement.

But as Europe’s new hegemon, Germany prefers to keep Greece in a legal state of peonage.

Still, the question is why didn’t Greece walk out of the negotiations and accept the effects of a Grexit, especially since there could have been terms provided for an orderly exit from the euro?

There are two interrelated dimensions to this question of why Tsipras opted for a complete capitulation instead of facing a Grexit.

One dimension is that the Syriza-led government is essentially a pro-euro, left reformist party, only inches apart from traditional European social democratic parties.

The other dimension is that the Greek people are simply afraid of making the transition from the euro to a national currency.

The reason most Greeks are afraid of life outside the euro has both psychological and economic explanations.

The psychological explanation has to do with their own cultural insecurities.

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Geographically, Greece belongs to the West, but the mentalities and habits of most Greeks are much more Eastern than Western.

Greece never experienced European movements such as the Renaissance, the Enlightenment, and the Industrial Revolution, and its entire administrative structure, and even tax collection system, are really a remnant of the age of the Ottoman Empire.

The economic explanation has to do with plain uncertainty, if not outright ignorance, about the pros and cons of Greece’s participation in the European Monetary Union.

The curse of the euro

Greece was never fit to join the eurozone, and its participation in it has been a huge, unmitigated disaster.

Greek competitiveness declined sharply after the adoption of the euro, although the economy experienced fairly strong annual growth rates between 2001 and 2007.

However, this was due to heavy borrowing on account of the availability of cheap credit and the growth and spread of various bubbles across the economy.

Of course, everything began to unravel once the global financial crisis reached Greece’s doors in 2008.


The economy entered into a recession by late 2008 and early 2009, and the Greek debt crisis exploded in early 2010.

Would Greece then be better off outside the eurozone?

With the eurozone’s regime showing no signs of relaxing its attitude on austerity or proceeding with the introduction of a democratic form of governance, Greece and the rest of the peripheral countries would be much better off outside the euro than remaining members of a monetary union, which thrives on asymmetries and the accumulation of surpluses by the strong economies at the expense of the weak ones.

As it stands, the eurozone is fit only for strong, highly competitive economies, and countries like Greece, Portugal and Spain, among others, face natural disadvantages.

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Greece and the other countries in the periphery of the eurozone should expect austerity to reign supreme in economic policy-making for decades to come.

Of course, the day may come when the euro area transforms itself into a fiscal and political union.

But that could be a long time from now, and in the long run we are all still dead.

C J Polychroniou is a political economist/political scientist who has taught and worked for many years in universities and research centres in Europe and the United States.

The views expressed in this article are the author’s own and do not necessarily reflect Al Jazeera’s editorial policy.