In his Transatlantic Take piece, Francois Lafond reflects on recent developments and offers some pointers for future economic governance within the Eurozone. Having just returned from Athens, let me add some additional reflections on the potential geopolitical implications of the crisis.
First, the scale of the budget crisis facing the new Greek government will impose serious costs on Greek citizens. As past violent disturbances in Athens make clear, there is a substantial reservoir of social discontent and resentment within Greek society. The new PASOK government of George Papandreou, with its close ties to public sector unions and others, is better placed than its predecessor to impose these costly adjustments. But it will not be easy, and the potential for large scale unrest is very real. Greek society also has a strong sense of cohesion €“ and the large grey economy can help offset the pain for average citizens. Still, it is likely to be a close run thing for a country that has seen decades of essentially uninterrupted prosperity and modernization. It is a test that will be closely watched elsewhere in a region where economic and political futures are fluid.
Second, Greece under Papandreou has been poised to play a new and more active role in multiple regions. Priorities include the consolidation of détente with Turkey, contributions to dialogue and stability in the Balkans and the Black Sea, and a role in the Middle East peace process. The financial crisis is likely to prove an enormous distraction for the Greek government and may limit the energy (and credibility?) of Greek diplomacy in key regions. More narrowly, Greece relies on European partners for support on more contentious questions, including Cyprus, the Aegean, and the name dispute with “Macedonia.” Beholden to financial saviors and monitors in Brussels and elsewhere, Greek leverage on these issues may be reduced.
Finally, it has already become fashionable to speak of a southern European disease affecting finance and governance in Portugal, Spain, and Italy, alongside Greece. To be sure, all these countries face significant economic challenges. But the contours of their national financial crises differ substantially, and little is accomplished in policy terms by amalgamating these disparate cases in ways that weaken the stability of all.
Ian Lesser is a senior transatlantic fellow with the German Marshall Fund.
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