By Alper Ali Reza
Today’s referendum passes on to the Greek people the ultimate responsibility of deciding whether to accept or reject its bailout deal and whether Greece will stay in the euro zone. Although very late, this is direct democracy as originally conceived by the ancients.
In an article in Today’s Zaman in May 2012, I said that Greece’s former prime minister, George Papandreou, had been unfairly criticised for recommending a referendum before ratification of the terms of the bailout as the ‘austerity memorandum was going to have an immediate direct and deleterious effect on the quality of life of the people’ and it was only natural that the people should be consulted before ratification. Better late than never, although it may now be too late.
It was as obvious then as it is now that Greece cannot service such an enormous debt even after the biggest write down in history. The EU knows that Greece is unable to repay a debt of about 250 billion euros, which is 175 per cent of her Gross Domestic Product. It is noteworthy that when Argentina defaulted in 2001 her sovereign debt was 50 per cent of GDP and unlike Argentina Greece is at present economically dysfunctional. On the other hand defaulting and leaving the euro zone is unlikely to improve the life of the people and may make matters worse.
Significant relief for Greece is therefore absolutely necessary and the question is how to persuade Germany of this whilst acknowledging the reason why such relief is politically very difficult in Germany is because Chancellor Merkel promised the hard working German taxpayer that the huge financial assistance provided to Greece since 2010 was a loan and not a gift.
Greece’s creditors do not believe her government can remedy the situation just by tinkering and taxing the rich because tax collection is easier said than done in this part of the world. What is required of Greece is a further cut in public expenditure because unlike taxation this does not involve problems of collection. The people of Greece are being asked to curtail their pensions, but as every traditional Greek family knows the need for such pensions at a time of very high youth unemployment is real and extensive. Hence the decision of the government to call a referendum.
Greece is facing an existential crisis as a stable advanced society part of the EU. The crisis is not just financial; it is political and social. There are signs of a breakdown of law and order and the rise of virulently nationalist movements such as Golden Dawn, an unashamedly Neo Nazi party, reminiscent of the rise of the Nazi party in Germany in the 1920s for reasons that are uncannily similar. At that time Germany was ‘squeezed until the pips squeaked’ by the Allies who refused them debt relief in the payment of war reparations with consequences that led to World War II.
The threats to Greek society are real and immediate and yet astonishingly Greece’s military spending has not been on the agenda in the negotiations to end Greece’s debt crisis. Apparently, Greece spends more on defence as a proportion of her economy than any other state in Europe and yet military spending has not loomed large in the negotiations.
This is very strange as the equivalent of an equitable set-off of part the Greek debt may avail Greece if there is any truth in rumours that the German military industrial complex used unorthodox methods to motivate the purchase of arms by Greece. There is evidence that a former Greek minister received kickbacks, and there are respectable arguments that it would be manifestly unjust to ignore the legal consequences of such practices in deciding debt relief for Greece.
Put crudely, if German companies bribed officials in Greece to motivate them to purchase military hardware that was surplus to requirements, the value of such contracts can be set off against the value of the Greek debt that would satisfy any political fall out in Germany.
The German government itself may be in denial about skullduggery that may have occurred in the sale of arms to Greece, but if some of those contracts are indeed tainted with illegality, monies paid or owing can be set off in accordance with normal principles of equitable set-off. This can be done on the grounds that it would be manifestly unjust for Greece to be required to pay the German tranche of her debt without setting off the value of arms surplus to requirements sold to Greece; or indeed any other trade foisted on Greece unlawfully from any of her creditor countries in the euro zone.
It goes without saying that the reason why a cut in military expenditure is difficult in Greece is a perceived threat from Turkey. Europe has always been adept at playing on this fear that lies deep in the Greek psyche. It is true that the history and geography of the region have conspired against good relations between Turkey and Greece. There are many Greek islands close to Turkey, and Greece naturally feels the need to be able to defend them. There are also consequential disputes about rights to the sea and the air in the Aegean that poison relations between the two countries.
However apart from outstanding issues in Cyprus, the likelihood of an expansionist war between Turkey and Greece is remote and the two countries can move to a phase in their relations in which material interdependence makes war unthinkable with mutual reduction in military spending feasible.
As for Cyprus, a solution to the Cyprus problem is now probable and Greek ministers have said repeatedly that Greece no longer wishes to be a guarantor power of the independence of Cyprus. This does not mean that Greece would not seek to assist the Greek Cypriots militarily if the need arises but it does mean that Greece does not see such an eventuality as likely.
Alper Ali Reza is a queen’s counsel and part time judge in the UK