The roots of the euro go back to the Greek Civil War.
The roots of the euro go back to the Greek Civil War.
The main task of the post-Second World War trading and financial arrangements was to prevent the world economy from fragmenting into rival regional blocs. Americans, who had achieved hegemony in the Western world after the war, saw unlimited international trade as the main guarantor of wealth and peace. Europeans were a lot more sceptical from the start. Free trade has always been an ideology of the strong, and the Old Continent, which lay in ruins after the bombing, had no hope of competing with America in the foreseeable future.
From the perspective of monetary policy the main problem of the post-war years was the convertibility of European currencies, i.e. the power to exchange them into other currencies in an unlimited manner. Convertibility is an integral part of any free-trade order. The lack of tariff barriers alone does not guarantee the free movement of goods and services across borders. If the residents of a country cannot freely obtain dollars for import transactions, this kind of arrangement impedes US exports as much as customs duties or trade quotas. Since the European countries had to spend their few hard-earned dollars mainly on acquiring strategically important production inputs, a company that wanted to apply for dollars had first to receive a permit from the central bank every time. Foreign currencies were sold to civilians planning to go abroad in very limited amounts, if at all.
So the Americans demanded from the Europeans the free convertibility of their currencies from the outset. (At first this was limited to commercial transactions because there were still strict restrictions on cross-border capital transfers in the Bretton Woods system, which remained in place for many years.) When the British had to ask Washington for a loan in 1945, the Americans saw an opportunity to push through their objectives. London, in a corner, agreed to waive the transitional period promised in Bretton Woods in exchange for a favourable loan, and took the responsibility of eliminating all trade barriers resulting from the national distribution of currency within a year.
In July 1947, the British finally allowed all importers to freely exchange their pounds for dollars. This daring experiment ended in complete catastrophe. The loan from Washington, which was supposed to last until the end of the decade according to the original deal, was used up in a few weeks, and after the dollars ran out the UK turned back to the original restrictions with American permission. This failed attempt forced the Americans to completely change their attitude towards Europe, and security policy became the decisive issue instead of specific economic considerations.
The Greek Civil War, which had begun in 1946, played an important part in the American U-turn. In February 1947, the struggling British announced to the Americans that their austerity measures would not allow them to go on supporting the Greek government in the civil war against the communists. A crucial breakthrough occurred in March the same year, when President Harry Truman asked Congress for money to support the Greek and Turkish governments, and declared blocking communist expansion the cornerstone of US foreign policy. At the beginning of June, Secretary of State George Marshall gave a speech at Harvard University in which he called for an increase in the amount of aid provided to Europe.
The failed convertibility experiment of the British, the Greek Civil War, and the Truman Doctrine that emerged from the first two, forced the Americans finally to give up the initial idea of a post-war economic order. In the late 1940s the Americans understood that the abolition of trade barriers and conversion limits must be coordinated. Europe needed an internal market of an equal size to introduce American mass production, but the continent’s trading regime at the end of the decade was characterised by a jumble of bilateral agreements.
In 1950, the European Payments Union (EPU), illegitimate offspring of Bretton Woods and forefather of the eurozone, was born with American help. The EPU did essentially the same thing on the European level that the IMF was supposed to do on the global. All the countries belonging to the union agreed to eliminate simultaneously the trade restrictions they had in place and to guarantee the free convertibility of one another’s currencies. However, by allowing the European countries to decrease the number of trade restrictions they had implemented between each other faster than those they applied to other countries, Washington renounced one of the most important objectives of the Bretton Woods agreements: avoiding regional trade blocs. This compliance derived directly from the Truman Doctrine, the birth of which was, in turn, greatly influenced by the Greek Civil War.
Valuable domestic peace
While Western Europe began to recuperate quickly with the help of the Marshall Plan and steadily activating commercial relations, Greece continued to suffer from poverty and internal conflict. As Jason Manolopoulos writes in his book Greece’s ‘Odious’ Debt, “Spain had a brutal civil war; the rest of Western Europe had the Second World War. Greece had both.” Greece inherited a deeply divided nation from the civil war, which ended in 1949 with the victory of government forces. The right-wing parties in power were constantly concerned that the communists might win the elections. The military coup of 1967 was mainly intended to eliminate this threat. The anti-market, state-focused ethos that plays an important role in Greece’s contemporary fiscal and financial problems is mostly a consequence of the civil war and years of military dictatorship. The continuing popularity of all sorts of Marxist, Trotskyist and other left-wing ideas is largely conditioned by the fact that this political wing put up the most resilient resistance to the colonels’ criminal regime. When the junta finally pushed two NATO countries to the brink of war by its actions in Cyprus in 1974, the military was forced to abandon power. Under the leadership of Konstantinos Karamanlis, who returned from exile, Greece stepped onto the path of democratic reorganisation.
Although overthrowing the colonels prevented war, the Cyprus crisis had another lasting influence—before the credit crisis, Greece allocated a larger share of its GDP to defence expenditure than any other country in the European Union. In Manolopoulous’s words, it is also remarkable that, in addition to Greece and Turkey, the proportion of defence expenditure is also significantly higher than the average in Cyprus, Macedonia, Armenia and Bosnia-Herzegovina. “Not all high spenders are hostile to Greece, but this list indicates that much of the world’s military hardware is located in this
relatively small and volatile geographic area,” writes Manolopoulos.
Seven years after the end of the dictatorship and the division of Cyprus, the doors of the European Economic Community finally opened to the democratised and renewed Greece, giving the Hellenic political class completely new perspectives. With the newly appointed government of Andreas Papandreou, the power of the right wing that had lasted nearly half a century came to an end, and large-scale social reorganisation could begin. European aid helped Papandreou to create a vast number of government jobs for his supporters and hand out all sorts of perks to them. After joining the eurozone in 2001, cheap credit started flowing in and, with it, the resources of the political elite grew even more. All the Greek right- and left-wing governments of the last three decades have tried to fill the void between the two antagonistic sides of society with the help of European benefits and loans. The main goal of the political elite was to buy domestic peace and, until they were able to do so at the expense of neighbouring countries’ taxpayers or free-handed foreign investors, they almost managed to leave the impression of a grand social reconciliation. Five years ago, however, the receding credit wave brought old conflicts into daylight again.
Outermost defensive wall
In 2015, Greece was on the verge of dropping out of the eurozone, riven by internal conflicts, a border country located in a highly unstable region. EU finance ministers reassured themselves with the fact that the eurozone was more prepared for Greece’s departure at that moment than it had been five years before and was likely to survive the resulting shock. But even if the eurozone could have survived Greece leaving without any repercussions, this would probably have introduced a new stage of the debt crisis in the wider perspective.
“It may be difficult to imagine a developed country, a full member of the EU and NATO,
becoming a weak or dysfunctional state,” writes Greek foreign policy expert Thanos Dokos. “However, the margin of safety and the distance between order and disorder in a period of prolonged and deep recession, without an exit from the crisis in sight, can be narrower than expected.” If Athens’ current, definitely obstinate, but overtly Europhile government should fail—leaving the eurozone would certainly signify a failure—there would be nothing peculiar in the rebirth of an extreme far-right internal and foreign policy in the context of Greece’s post-war history.
If such an upheaval also involved Greece leaving the European Union, this would have far-reaching consequences for the current Western security structure. Although, in that case, it would probably be claimed that the main culprit in Greece’s suffering and humiliation was Germany’s claims to hegemony, Greece would quite likely soon become deeply anti-American and turn away from the West in general. Greece’s membership of NATO could become questionable sooner or later in such an unfavourable scenario. At this point—at the latest—Greece’s crisis would cease to be the area of expertise of finance ministers and central bankers.
Problems in NATO and the accompanying tensions with Turkey would weaken the south-east flank of the Alliance at the very time that the Arab Spring has slowly become a smoking gun in North Africa and the Old World of the Middle East. In some ways, this turn of events would fit into the overall pattern of development of the credit crisis. A former IMF chief economist, Raghuram Rajan, says that the main cause of the United States’ loan bubble was the generous credit policy implemented by consecutive governments since the 1980s. The cheap loans handed out to the lower classes made it possible to obscure the growing financial and political polarisation of society in the US, where the number of blue-collar jobs was decreasing due to globalisation—which is exactly what consecutive governments were doing in Greece at the same time.
At the EU level, the same process manifested itself in the movement of loan money towards the periphery, which left a false impression about the equalisation of countries’ income levels at the peak of the credit cycle. But once the credit curtain was torn apart, the gap between rich and poor became painfully evident, both within and between countries. At the same time, the tensions have not caused all that many consequences for the United States—although the riots in Ferguson could also be viewed in that light—or even for Greece, but rather for North Africa and the Middle East.
The rapid rise in food prices was among the factors that kick-started the Arab Spring—this was largely caused by the unprecedented quantitative easing initiated in the US. As in the Western countries, where it is mainly the wealthier classes that own shares and other financial assets that have benefitted from this money-printing, it is first and foremost the wealthier countries that have benefitted on the international level (Germany’s unemployment is at its lowest for the last couple of decades). The predicted big political counterattack in response to growing unemployment and inequality in the European countries affected by the crisis has not materialised, and most of the political elite have managed to keep their jobs. In the Middle East and North Africa, however, there have been monumental changes, the impact of which will increasingly reach the heart of Europe—so far relatively untouched by the recession—owing to terrorism and booming immigration.
Greece’s grand failure would, alas, be a wide channel through which the Arab Spring—a rebellion of the poor—could reach the heart of Europe. What gives us reason to believe that a country can fail only if we are talking about Libya? Where the Mediterranean is at its narrowest, only 300 kilometres of sea separate it from Crete. As we have seen, it was mainly the civil war in Greece that started the European economic cooperation which resulted in a shared currency. It would therefore not be too surprising if the political order of post-war Europe started to fall apart there, too. Brussels, Frankfurt and Washington are currently negotiating with Athens from a position of power, because Greece’s government is in big trouble financially. But if the continuing horse-trading finally demolishes the gate in the outermost defensive wall of the European fortress, it is probably too late to build a new one. The French Revolution was brought on by the hauteur and inflexibility of the Bourbons. For a pauper standing in a soup line in Athens, the headquarters of Siemens look like Versailles, while a jobless person in Thessaloniki looks like royalty to a barefooted little devil in a Tripoli slum.