Greece is "heading for chaos" following its rejection of a bailout package that came with strict austerity conditions, according to a local high-profile economist.
Voters rejected the offer from the European Commission, the International Monetary Fund and the European Central Bank, after Prime Minister Alexis Tsipras said a 'no' vote would ensure Greeks wouldn't have to endure austerity terms, which would see taxes raised and Government spending lowered.
Greece is US$423 billion in debt, 175 percent of GDP, and "one step from the abyss" according to executive director of right-leaning think tank The New Zealand Initiative, Oliver Hartwich.
"The Greek Prime Minister Alexis Tsipras really wanted to have his cake and eat it, so basically his proposal was, 'Look, we just want to keep getting all the money from the European Union we can get, we want to be bailed out, we want to get money from the European Central Bank to keep our banks afloat; and in return, we are precisely offering zilch. Nothing," he said on TV3's Paul Henry programme this morning.
"He didn't want to play by the European Union's rules; he didn't want to enforce austerity, he didn't want to reform the economy, and that's what he campaigned for and 60 percent of Greeks said 'yes' to that."
In his view the European Union should kick Greece out, before other countries get similar ideas.
"They can't get away with it, because that would actually set a precedent. And it's not just the Germans who are rightfully annoyed; think about the Irish, the Spanish, the Portuguese – they all received money from the European Union and they played by the rules, so they accepted the austerity measures. They reformed their economies.
"If the Greeks now get a deal by just saying 'no' to austerity, I think Spain, Ireland and Portugal would be most annoyed."
In particular Dr Hartwich points to the growing popularity of Spanish party Podemos, which like Greece's ruling Syriza is opposed to austerity.
"If you allow the Greeks to get away with it, you're asking for more trouble down the track."
Despite the stark warnings, he doesn't expect the EU to play hardball with Greece.
"The European Union was never really founded on logic alone – it's a political construct," he says.
"They started monetary union for political reasons, they got Greece involved in it, and for political reasons they might not keep them in. But it doesn't make any sense. Whenever you're talking about the European Union, you shouldn't really talk to an economist – you should probably talk to an astrologer instead."
Prime Minister John Key holds similar views, saying the EU's goal of a unified Europe "runs immensely deep through their veins".
"On the other side of the coin though, there are rules which govern each of these countries, and once you start breaking those rules – you spend too much, you don't tax your citizens, all these sorts of things – then eventually you actually challenge the stability of all of these countries."
If anyone's likely to move to push Greece out, Mr Key says it'll be Germany's Angela Merkel.
"The German taxpayers that see themselves as paying the bill, and the Germans are sick of it. They're sick of bailing out Greece."
The next deadline for Greece is July 20, when Dr Hartwich says they're due to pay €3.5 billion to the European Central Bank.
"I've got no idea how they're going to get the money," he says.
If they don't, Greek banks will probably be cut off from the international monetary system, forcing the government into printing a new currency.
3 News
source: newshub archive
