Greece and the Eurozone: What happens when co-operation fails

The essence of co-operation is people working together to create something from which everyone benefits. Co-operative organisational models vary, but this is at heart what all of them...

The essence of co-operation is people working together to create something from which everyone benefits. Co-operative organisational models vary, but this is at heart what all of them aim to achieve.

We in the co-operative movement tend to think of co-operatives as something that we do but the rest of the world does not. Yet co-operation as a way of doing business is not limited to co-operatives.

Indeed, it is not limited to enterprises. One of the biggest “co-operatives” in the world is the European Union. It was created to prevent wars – the ultimate in destructive competition: co-operation can be a means of preventing them. As Churchill said, “To jaw-jaw is always better than to war-war.”

But the EU’s ambitions quickly went beyond just preventing war. It soon became a means of promoting and encouraging trade and enterprise inside and outside the European economic area. And for much of its existence, the framework has been co-operation.

Encouraging co-operation between nation states to achieve the best outcome for all has from the start been the principal objective of European policymakers. In international trade, for example, the countries of the EU collectively create trade agreements with countries outside the EU.

Those agreements may not be to the best advantage of individual EU countries but collectively they aim to benefit everyone. We can argue about them: TTIP is controversial, and many people have reservations about unbridled global free trade. But the principle is essentially one of co-operation.

Other agreements within the EU itself have also been intended to promote co-operation, especially in the management of scarce resources. Too often, the reality has fallen short of the aim: for example, despite a common fisheries policy that has wrecked coastal communities in Britain, fish stocks are declining rapidly due to over-fishing and – probably – climate change.

Co-operation does not necessarily prevent the “tragedy of the commons”, then. Indeed, if “co-operation” is interpreted as “it’s not my responsibility” or “let’s not upset anyone (even if they are not abiding by the agreed rules)”, it can actually cause it.

Co-operation implies that we take responsibility not only for our own actions but for the actions of others, too.

But despite its co-operative ambitions, within the EU it has been competition, not co-operation, that has generally ruled. Nowhere is this more evident than in the Eurozone.

In the early part of this century, a shared currency encouraged German and French banks to lend heavily to banks in the Eurozone periphery. These in turn lent heavily to businesses, households and governments, blowing up credit bubbles and (particularly in Greece) inflating sovereign debt.

But when the financial crisis hit in 2007-8, the German and French banks abruptly stopped funding the periphery banks, crashing them.

The ensuing bank bailouts prevented the European banking system from collapsing – at the price of loading huge amounts of debt onto the public-sector balance sheets of periphery countries. All have been through severe austerity to reduce the deficits created by the collapse of their banks.

But those countries whose banks actually caused the problem have been spared that austerity. I don’t call this co-operation.

Surely the responsibility for dealing with the excessive lending of banks all over the EU should have been a collective one? Indeed, had there been more sense of shared responsibility prior to the financial crisis, French and German banks might have been better regulated and we might not have ended up in this mess. Co-operation can prevent disasters – and the failure of co-operation back in 2009-10 – and again in 2012, when Spain was forced to bail out its banks at the cost of severe austerity – has had terrible repercussions.

The burden of bank bailouts and the cost of recession was too much for Greece, already struggling with a debt burden going back to the 1980s.

In 2010, it admitted it could not afford to pay its creditors. Other Eurozone countries, along with the IMF, lent it money so it could meet its obligations.

But this was not “aid”, although it is often described as such. Nor was it “co-operation”, although again it is often described that way.

As Paul McNamara of the asset management company GAM said recently: “The 2010 bailout achieved its objective, which was to rescue the European banking system and make the Greeks pay for as much of it as possible”. Or the Irish, or the Portuguese, or the Spanish.

Someone else, in other words. Anyone else, except the perpetrators.

The Irish, Spanish and Portuguese accepted the burden placed on them and have worked hard to create a recovery of sorts – though unemployment is still horrifically high, particularly in Spain.

But Greece was far more badly damaged. The austerity measures heaped on it in the name of “reform” have wrecked its economy: GDP has shrunk by a quarter in the last five years, one in three adults is out of work and over half of young people have never worked.

You would think that in a genuinely co-operative union, other participants would rally to a country distress and help it back on its feet.

Not so. The countries who lent to Greece in order to bail out their own banks blamed Greece entirely for the disaster and demanded harsh terms for their “aid”.

In January this year, tired of an economic depression that is as deep as the US’s Great Depression and has now lasted longer, Greece elected a new government with a mandate to renegotiate the terms of the bailout.

The aim was to relax austerity and restructure the debt so that the economy could recover, and in particular to stop cutting the pensions, benefits and real wages that the poor depended upon.

It was clear from the start that the other Eurozone countries did not wish to co-operate with Greece on this matter: they refused point blank to discuss debt restructuring, and only grudgingly agreed to the relaxation of some austerity targets.

For its part, the Greek government conceded more and more – perhaps too much – but eventually dug in its heels over demands for pensions to be cut again (they have already been reduced by 40%) and VAT to rise to 23% for businesses on which the economy critically depends.

The Greek government called a referendum to ask its own people whether they would accept those terms. The result of the vote on July 5th was a resounding “no” – but in the meantime Greece was put on the rack. Funding for its banks from the European Central Bank was restricted, forcing it to close the banks and impose capital controls.

Now, Greeks cannot withdraw more than €60 per day from cash machines. Despite this, the banks are expected to run out of physical cash any day now. Greece’s membership of the Euro club has effectively been suspended. And the effect on its economy is horrible.

At the back end of 2014, Greece was showing some signs of recovery: but now it is collapsing fast.

Whose fault is this? It is debatable. For some, Greece walked out of the talks and is now demanding that the rest of the Eurozone kowtow to the demands of its population.

For others, if the Eurozone had been more willing to co-operate with Greece in finding a solution that didn’t trash its economy, the problem would never have arisen.

There is some truth in both. But  the fact is that the co-operative spirit that is essential for any enterprise where resources are shared has evaporated in a shower of accusations and recriminations. Trust – the foundation of co-operation – has broken down.

There can be no winners in this ghastly situation. The abject failure of co-operation in the Eurozone has created a real Greek tragedy.

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