Divergence and Convergence

The German yellow press – represented by the Bild-Zeitung, the daily with the by far largest circulations – is drooling: NO MORE BILLIONS TO GREEDY GREEKS!  In its lead editorial the chief-editor makes the case that it is best for Greece to leave the Eurozone, as this is the only way to overcome the devastating economic crisis. All this has been published at then day when the German Parliament discussed the extension of the program for Greece. And yet, the proposed extension of the program got 541 votes – that was the strongest support for any eurozone rescue operation so far. (32 parliamentarians voted no; 123 abstained; and 45 did not vote at all). This vote reflects a strong Syriza-effect as the first time Die Linke was in support of a rescue program – they couldn’t afford not to support their friends in Greece. Public opinion and political parties are far apart at this point. This can change quickly if Greece will come back to the ‘Institutions’ and ask for a next rescue program in summer of this year. Given the electoral rise of the Alternative fuer Deutschland it seems to get more difficult for the CDU/CSU to explain the electorate a next financial injection. According to a poll of the broadcaster ARD German’s are no longer in strong favour of a Greek membership in the Eurozone. At the hight of the Greek crisis in 2012 two-thirds stated that Greece should stay in the Eurozone. Today only 41% are in favour of Greece’s membership.

The segment of Greek citizen who still hold significant savings in the domestic banking system as well as international investors seem equally concerned. In January of this year close to 27 billion Euro – net terms – were moved to other Eurozone financial institutions. Given the wobbly political situation and the disappointing economic data coming from Greece this is no surprise. Still, it makes life for the Greek government more complicated, and the capital export may even increase if the Greek coalition government would get serious with its plans to fight tax evasion. German yellow press and holders of wealth are moving into the same direction.

Grexit is back on the agenda and so is the fate of the Greek government. Despite all efforts to sell the recent extension as a important victory it seems fair to state that the logic of ‘extend and pretend’ has not only not be broken but also got a new fundament. Early indicators hint that the brief period of primary budget surpluses are coming to an end. More concerning is the indication that the weak growth of the economy may come to a halt, and this will further worsen debt indicators. One can argue that the most recent political compromise comes with a weakening of the political support for Syriza, and a next round of support may end the political death of the young party. Whether EU governments then would have it deal with parties like Golden Dawn is up to speculations. The option is that Syria will pull the emergency brake and move out of the eurozone. Two versions are possible, (i) a negotiated and planned exit or (ii) a messy exit. Obviously, a messy exit would come with relatively higher costs for Greece and also for the eurozone members who would lose all their claims against Greece. A negotiated exit seems the preferable option, as Wolfgang Streeck – former director of the Max Planck Institute in Cologne – suggests. Rather then going alone, so Streeck, such an option should be made open for other ‘southern economies’; who are interested to regain at least parts of their political sovereignty. Splitting the eurozone into a strong ‘North Euro’ and a weak ‘South Euro’ is no new idea but has been around since quite some years; today it is most prominently supported by the Alternative fuer Deutschland. New is this suggestions only in so far as Streeck does not at all belong to the political camp of this party. Rather, he is  internationally known as a left-oriented social scientist.  Even though the convergence is not in terms of the analysis of the underlying problem then it is in terms of policy suggestions, it is still convergence.

Given the short-term financing needs of Greece in combination with the devastating economic data, the question about the future of Greece in the eurozone will continue to be top of the agenda. Chances are that the convergence factors decide the outcome.