Business·Analysis

Waiting for the next Greek crisis: Don Pittis

A celebration by global markets that Greece is 'returning to normal' may be premature, says Don Pittis. A clash between two of Europe's great institutions means this is a crisis that has legs.

The election of Alexis Tsipras was a symptom, not a cause, of a crisis that isn't over yet

An elderly man leaves a branch of the National Bank of Greece in Athens on Monday. Greek banks have reopened, but hopes of a "return to normal" may be short lived as ordinary people feel the pain of the latest deal, Don Pittis writes. (The Associated Press)

Don't be fooled. If Greece is on its way back to normal, as many reports are saying after the latest deal with Europe, it may not be the kind of normal most of us — and most financial markets —have been hoping for.

With banks reopening and Germany promising debt relief, global markets have heaved a collective sigh of relief and are kicking into "crisis-averted" mode. Gold and oil are falling. Stocks, bonds and the euro are stabilizing.

"We are entering a new stage which we all hope will be one of normality," said Louka Katseli, head of the Greek bank association.

New normal

If this is normality, it may be a special Greek kind that involves serial bouts of crisis. While the current deal could calm things down for a while, the European crisis surrounding Greece is far from over.

It is revealing that Alexis Tsipras, the socialist prime minister so widely blamed for precipitating the latest battle over Greek austerity, has acceded to all of Europe's demands. That's because the election of Tsipras was not a cause of the most recent dispute, but a symptom. 

The real cause is a clash between two powerful institutions that normally only make Europe stronger: Finance and democracy.

Finance depends on people making agreements over money and, for the most part, keeping them. Democracy represents the will of the people.

When things are going well, the two can work in harmony. Wise electorates vote in prudent governments. Governments are careful to share the wealth to avoid defeat. But as we saw last January democracy does not deal well with generalized social pain.

Falling expectations

It is widely theorized that revolution springs not from grinding and relentless poverty, but from thwarted expectations. And at their best elections are the process of gradual revolution. 

Certainly the expectations for a majority of Greeks are about to get decidedly worse. Household articles from food to condoms will get roughly 10 per cent more expensive as value-added tax (VAT) — included in the basic price of goods — rises from 13 to 23 percent. 

For better-off people, that will mean goods cost more. For poorer people who spend everything they earn, it means getting 10 per cent less stuff. Meanwhile, retired people face cuts in their pensions. 

And those extra taxes will not go to make the country's economy stronger. For the most part that money will flow out of Greece. Because instead of debt forgiveness, the "debt relief" currently proposed by rich countries will merely extend Greek loans, and the taxes to pay the interest on those loans, far into the future. 

Under austerity, it is normal for things to get worse before they get better. But unlike in other countries such as Ireland and Portugal that have accepted austerity, for Greeks the light at the end of the tunnel seems dim. 

Endless austerity?

Unemployment, already at 25 per cent could very well rise. Property values are still falling. Wages are unlikely to keep up with rising prices, leading to further labour unrest. The money and people that left the country during its long crisis are unlikely to return.

This week, the Greek parliament is expected to vote for even more austerity for its people. And while Greeks have generally backed their current prime minister, that could change after the new round of cuts start to bite.

Credited with inventing democracy in ancient times, since the practice was reintroduced in the late 1800s, the modern Greek state has had a volatile history. Leftist governments have alternated with those of the right. Democracies have alternated with military governments.

So long as Greece remains a part of the European Union, it is hard to see democracy being overthrown again. But there is a strong likelihood that democracy will once again rebel at what feels like endless austerity.  It will mean that, like all the supposed solutions before it, the current fix for Greece is a temporary patch-up job, not a resolution. We should prepare for the next chapter.

Follow Don on Twitter @don_pittis

​More analysis by Don Pittis

ABOUT THE AUTHOR

Don Pittis

Business columnist

Based in Toronto, Don Pittis is a business columnist and senior producer for CBC News. Previously, he was a forest firefighter, and a ranger in Canada's High Arctic islands. After moving into journalism, he was principal business reporter for Radio Television Hong Kong before the handover to China. He has produced and reported for the CBC in Saskatchewan and Toronto and the BBC in London.

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