“As of this evening” said Pierre Moscovici in Luxembourg in June, “the Greek crisis is over.” Moscovici, a French Socialist politician who serves as the economics commissioner of the European Union, was making quite a claim. At the turn of the century, Greece was the weakest and most corrupt of the countries to join the euro, the currency of most E.U. member states. When the American subprime meltdown resulted in tightened credit markets 10 years ago, Greece’s entire economic system collapsed, threatening to take other European countries down with it. The episode revealed flaws not just in the way Greece’s government had run its economy but in the design of the euro itself.
The single currency had already undermined Greece’s prosperity, albeit while making Greeks feel rich. The ability to borrow at rock-bottom interest rates more suitable to venerable corporations in Stuttgart had brought inflationary pressures. Greece’s manufacturing and export sectors had lost their competitiveness, with a couple of exceptions, like olive oil. The country’s economy was reduced to tourism and real-estate speculation. Once the crisis hit, an E.U. plan to rescue “Greece”—by which was meant the Western European banks that did business there—destroyed the Greek economy altogether.
There is a profound mystery about the euro, according to economist Ashoka Mody. ‘Why,’ he asks, ‘did Europeans attempt such a venture that carried no obvious benefits but came with huge risks?’
A currency of one’s own is a great thing to have in a crisis; a country can regain competitiveness by devaluing it. Lacking one, Greece was at the mercy of eurozone authorities in Brussels and the International Monetary Fund. Together they imposed a plan to strip government benefits, cut wages, and sell off assets. The Greek government sold the fabled Athenian port of Piraeus to the China COSCO Holdings Company and Thessaloniki’s port to a Russian tobacco oligarch who made the newspapers in March when he protested a referee’s call that went against the Greek soccer team he owns by descending onto the field with a gun. The internationally imposed austerity led, as a majority of economists had warned it would, to a dramatic shrinkage of Greek GDP. Greece handed over precious assets and wrecked institutions of long standing . . . and wound up owing more. Its debt-to-GDP ratio did not fall but rose, from 127 percent at the start of the crisis in 2009 to 172 percent two years later. Then Greece paid with its democracy. In November 2011, just as those numbers came out, the country’s prime minister, George Papandreou, announced a referendum on the E.U. austerity measures. German chancellor Angela Merkel and French president Nicolas Sarkozy summoned Papandreou to Cannes to warn that they would shut off funds to Greece should he do so. He resigned.