Over the weekend, former U.S. Federal Reserve chairman Alan Greenspan predicted that Greece will end up leaving the eurozone and that the euro will not long survive its departure.
His comments follow a weekend in which, accompanied by his finance minister, the new socialist Prime Minister of Greece Alexis Tsipras has been touring the capitals of Europe, touting his plan to simultaneously wave off a big chunk of his national debt and somehow persuade other nations to loan him even more money. The tour does not appear to be going terribly well.
In an interview with the BBC, Greenspan made a dour but straightforward prediction: Greece’s early gamble that Europe would invest more money to protect its previous investments is not paying off, which makes Tsipras’s plan to weaponize his own debt with a “too big to fail” argument a tough sell. He was also clearly hoping European national officials would agree that the debt plan imposed on Greece by the IMF was unreasonable, but he has yet to find the sympathy he was looking for.
Therefore, Greenspan thought it unlikely that Greece’s creditors would either forgive its debt or advance additional loans, so the only way for Tsipras to escape the bailout plan he campaigned against would be to leave the EU. “All the cards are being held by members of the eurozone,” Greenspan judged, and that is not the kind of game a revolutionary socialist like Tsipras, who campaigned on promises to shake the Union until euro notes fell from heaven, wants to play.
Tsipras was correct in thinking that a Greek exit, and the loss of European money previously plowed into sustaining its economy, would be an unwelcome development. However, the BBC speaks of frosty German bankers declaring themselves quite satisfied with the terms of the repayment plan Tsipras campaigned against, and of British ministers bracing their economy for the shockwave from a Greek exit. Those shocks are already building, as the Greek stock market is plunging off a cliff and dragging European stocks down with it.
Greenspan did not end his prediction with a Greek departure. He said he doubted the European Union would be able to continue for very long, because the Greek crisis highlighted the impossibility of maintaining a financial collective with political control to match. In other words, as critics of the EU (including Greenspan himself) maintained all along, there is no way to make a single currency work without a single European nation.
“It is just a matter of time before everyone recognizes that parting is the best strategy,” said Greenspan. “The problem is that there is no way that I can conceive of the euro of continuing, unless and until all of the members of the eurozone become politically integrated – actually, even just fiscally integrated won’t do it.” Such a level of integration is extremely unlikely.
Further hindering the success of Tsipras’s charm offensive is Greece’s decision to pursue modern-day Germany for extensive reparations over the Nazi occupation of Greece in World War II. That was another of the new Greek Prime Minister’s lavish campaign promises, and it is not surprising to learn that it played considerably better in the streets of Athens than the boardrooms of Berlin. Germany already paid sizable reparations to Greece in 1960 and considers the matter settled, but the Greeks say that was just a down payment on a sum that would be more like eleven billion euros in 2015 currency.
Asked to calculate the odds of those reparations being paid, German vice chancellor Sigmar Gabriel flatly stated, “The probability is zero.” The fact that Greece’s new government would seek to push such an outlandish claim at this particular moment doesn’t bode well for the probability of the European Union surviving in its current configuration.