As I write this, the next EU bailout of approximately 130 billion Euros for Greece is still moving slowly toward approval. But there are still many obstacles to overcome including legal, political and financial hurdles before the Greeks can start receiving this money and avoid a default. While the Greek parliament has approved the latest round of cuts and austerity measures, no one is betting that everything gets better from here on. In fact, both the markets, as a whole, and many EU politicians and foreign advisors are still betting – or at least suggesting – that Greece will default, and leave the Euro zone, if not the EU itself. The latest is Luxembourg Finance Minister Luc Frieden who stated that perhaps Greece should leave: “It might be something which would allow Greece also to get a new start ... to create an economy that can create jobs.”
This past weekend, Greek Prime Minister Lucas Papademos warned of a “social explosion” if the parliament did not approve the package of cuts and austerity measures. The Greek people, however, reacted with a “social explosion” of their own, 80,000 in Athens and 20,000 in Solun setting fire and looting over 150 buildings with well over 100 people being injured and/or detained. That sounds like a “social explosion” to me.
Over the past year plus now, we have heard of and been warned about the possibility of Greece imploding, both if it continues down this current path of getting EU bailouts or if it defaults and goes the way Argentina did when it defaulted. It seems that, either way, Greece will implode. The question is what the consequences of that implosion are.
I do not wish to be an alarmist here, but the phrase “failure of imagination” was used right after 9/11 in the United States – no one ever conceived of the idea of hi-jacking planes and flying them into buildings. It was a failure to imagine such a scenario that actually lead to that very scenario.
Greece has a turbulent history since gaining independence from the Ottoman Empire in the 18th century. As recently as the early 1970s, Greece was living under a military junta (and yet still managed to stay in NATO, a troubling thought). Greek terrorist organizations still exist today and the Greeks, as a whole, have a tendency to lash out, both at themselves and others when boxed into the proverbial corner. It could all happen again. Only it could be much worse.
Although the caretaker Greek government has approved what the Troika wants, there is no guarantee that the future government (which could come as soon as April) will continue to adhere to the plan laid out now. New Democracy Leader Antonis Samaras has repeatedly said he will not support further cuts and austerity only to back them at the last minute while at the same time saying that when he becomes prime minister (and polls have him in the lead), everything is subject to renegotiation. On Sunday before the vote he told his members “I am calling you to vote for the new loan agreement because I want to avoid falling into the abyss, to restore stability, so that we can have the possibility tomorrow to negotiate and change the policy that is being imposed upon us today.” And so the Troika wants the current government – and all political parties – to provide written guarantees that they will implement reforms and cuts, but written guarantees are worth the paper they are written on, which is nothing.
Again, I do not wish to be alarmist here but the EU – and the United States – needs to think creatively and imaginatively about what might happen if Greece does implode, either from defaulting and being forced out of the Euro or through more painful budget cuts and austerity measures which will only lead to a shrinking economy, rising unemployment, more pain and suffering. We know how Germany reacted to the imposition of the harsh terms of the Treaty of Versailles after World War I, terms they could never live with.
Former US Secretary of Defense Donald Rumsfeld used to talk about “known knowns” and “known unknowns” the latter meaning we know something will happen, we just don’t know what that something will be. And hence the failure of imagination. If the powers that be in the EU (and NATO for that matter) are not planning worst case scenarios, they should be.