The BRICs nations are watching closely how the big ‘No’ that emerged from the Greek referendum puts a big question mark on the functioning of international financial institutions. For the move to set up a New Development Bank by Brazil, Russia, India, China and South Africa has the same basic motivation as the Syriza government’s decision to use that ultimate democratic tool — a referendum — to determine whether ‘structural adjustment’ is acceptable to the people.
As an aside, remember that the word ‘democracy’ originates from the Greek demos kratos (rule of citizens).
The Greek people have rejected the austerity measures prescribed by the troika — the imf, the European Central Bank (ecb) and the European Union (eu). The onus is now on the latter to respect people’s aspirations in prescribing remedies to financial problems of the member countries has become a crucial imperative.
In effect, on 5 July, Greece used the power of democracy to resist the diktats of creditors who have been ‘helping’ the country tide over the acute financial crisis that has beset the country for almost a decade. The eu has to come out with a new plan to keep Greece in the eurozone.
So is should India fear another slowdown, as alarmists are suggesting? Speaking to Tehelka, EU ambassador to India Joao Cravinho pointed that in the last two years, a lot of stability measures have been taken in countries like Spain and Portugal. The ECB has been given more powers to deal with issues that arise. He cites the reaction of the market across Europe after the Greek referendum to drive home the point that even the business community is not buying the theory that there will be a domino effect.
BETWEEN LIFE AND DEBT
After arming himself with the people’s mandate, Greek Prime Minister Alexander Tsipras has made an effort to reach out to eu leaders by making his combative finance minister Yanis Varoufakis resign. He has been rubbing eu leaders the wrong way ever since the Leftleaning Syriza party was voted to power.
The initial reaction from European leaders has varied, with Germany sticking to its intransigent position towards Greece while saner voices are coming from France. It is certain that if the rift among the European leaders is not resolved, it will definitely complicate any further negotiations. If a deal with EU is not immediately struck, Greece will be forced to default on its international debt. More than that, the country will be hard put to pay even its civil servants.
Many economists are of the view that if the country is running out of euros, it would force the country to issue a parallel currency to pay its domestic bills, paving the way to exit the common currency. Tsipras, outmanoeuvring the creditors by going for the referendum, and getting people’s support for his policy of rejecting the austerity prescription, has posed one important political question to international financial institutions: How much do they care for democratic principles when it comes to dictating terms to the nations? Or are financial institutions, which seek unhindered movement of capital, in fact wary of democracy? The Greek people’s unequivocal ‘Nay’ to the international creditor’s prescription has brought forward this question, which no international banker or politician who subscribes to their policies has ever bothered to answer.
LEFT VS RIGHT
Syriza was elected to power five months back by a nation largely exhausted by years of economic slowdown and stringent austerity measures. After forming a government with as many as four leftist economists, Tsparis’ aim was to redraw the bailout packages. Even when reports were emerging from Athens that Syriza will most likely win, many in western countries were expressing apprehension that Greece would eventually quit the eurozone if a left-leaning government takes over.
However, these fears proved unfounded when all that the left-wing government attempted was to get a repackaged bailout. The Syriza government, despite opposition from within, tried to negotiate with the troika. Many thought a middle ground would be reached through negotiations between the creditors and the Greek government. But the creditors, after their meeting, put forward conditions that Greece should continue with their financial packages. Their demands included a cut in spending on pension by one percent of the gross domestic product (GDP), initiating labour reforms and accelerating the privatisation process.
The Syriza government could not accept these demands since it was elected to fight against these very policies. The then finance minister Yanis Varoufakis termed the condition “a proposal you make when you don’t want an agreement” and Tsparis termed it as perceiving “Greece’s attempt for an honest and complete solution as a sign of weakness”. This necessitated the referendum. For a party which rode to power on the disillusionment of the people against the structural adjustment programme started five years ago, many thought this was a natural reaction.
Many economists have argued that the financial and policy packages that the international creditors imposed on Greece for the last many years have landed the country’s economy in more trouble. Some say it was with the help of financial institutions like Goldman Sachs that the then Greek government went for the euro. The banks in Germany and France made huge profits by lending recklessly to Greece. After the 2008 meltdown, Greece was forced to implement policies that put the country in perpetual economic distress.