The deals contracted in the past week depict such contrasting fates for Greece and Iran. Europe, which owes so much to Greek civilization and its rich legacy of ideas and values, has to change tack in the light of the IMF comments and more adequately support the Greek efforts out of its crippling indebtedness with relief to usher, as in the case of Iran, a brighter future for its people from the doldrums of the past years
The past week saw long standing logjams involving Greece and Iran being broken into deals after arduous and protracted negotiations. However, each of these agreements has its own distinct story, outcome and lessons to be drawn. They reflect mixed fortunes for the two countries. In the case of Greece, it means austerity with a vengeance for its people.
The deal with Iran is a step back from conflict and confrontation in a volatile part of the Middle East. It is the beginning of a new relationship between Iran and the international community and high hopes for a better future for its people who have borne the brunt of sanctions since 2006.
After marathon discussions lasting some 17 hours and what Greek Prime Minister Alexis Tsipras called a ‘tough battle’ between the 18 Eurozone leaders and Greece, a third bailout deal covering 86 billion Euros was agreed for Greece. The serious risks to Greece’s economic and financial sustainability and one of the worst crises faced by the European Union had thus been averted. The battle between 18 Eurozone leaders and the Greek delegation was uneven.
German intransigence with Germany ruling out cancelling any of Greece’s crippling debts, mistrust of the young far left wing government as well as the backdrop of Greek debt payment defaults and dried up liquidity in the banking system scripted the humiliating outcome of the agreement. In spite of a massive tweet-driven support from the Greeks to their delegation, it was clear that a deal could only mean tough conditions to ensure that Greece honours its commitments and further hardships for the Greek people for many more years.
Austerity had won, although its fanatical high priests are yet to pull Europe out of recession. The obvious intent was to use the Greek case to set an example for others so as to prevent any future default on debt commitments and ensuring through strict shepherding of the Greek undertakings that Greece honours its obligations in full. Thus, measures rejected by a 61% majority of Greeks at the recent referendum are part of the bailout package. EU officials confided that Tsipras was subjected to ‘mental waterboarding’ in closed-door meetings and had to accept these measures under intense German pressure. Germany insisted on having cast iron conditions to ensure that Greece adheres to stringent austerity measures. In the process, too much sovereignty has been surrendered. Is that a viable vision of solidarity for Europe?
As per the agreement, the bailout deal and related tough economic measures which inter alia include tax rises and a rise in retirement age were debated and approved by the Greek Parliament this week with the support of the opposition. Its tenor has led to rebellion from some in the ruling Syriza party and street protests outside Parliament. The deal is also to be approved by the other EU Parliaments.
It must be remembered that the Greek debt of some 320 billion Euros represents about 175% of its Gross Domestic Product (GDP). Such a colossal debt which is exacerbated by the weight of interests every year is unsustainable for the Greek economy where severe austerity measures enforced over the last five years have not only contained public expenditure but also government revenue. Tax evasion estimated in tens of billions of Euros is a major handicap which the Greek government is trying to address. The scope and efficiency of tax collection also needs to be significantly improved. However, pursuant to the severe austerity measures, Greece’s primary budget was in surplus in 2013 and 2014 whereas that of France registered a deficit of 4% of GDP in 2014. Greece has a relatively small weight of less than 3% in the EU.
The severe conditions imposed on Greece have left scars and rifts among the EU membership. It heaps additional hardships on the Greeks. Nobel prize winning economist Paul Krugman said the EU demands on Greece are madness and accused Germany of killing the European project. In a blog published in New York Times he asked ‘Who will trust Germany’s good intentions after this?’
The vision of a united, prosperous and fully integrated European Union must be based on a strong spirit of solidarity among its member states to help and support each other at all times and in particular in periods of difficulty. Germany, which has become the omnipotent paymaster of Europe, had obtained massive financial support for its reconstruction after the widespread destruction caused by its defeat by the allied forces in World War II. It also benefited from large debt reliefs and debt restructuring plans. The wealth and strength of Europe is the diversity of its 28 member states, each with its own rich culture and national ethos which make it such a unique entity, imbued with old world charm.
The financial crisis has caused even France’s debt to rise to more than 2,000 billion Euros i.e. more than 95% of its GDP in 2014. It is clear that each one of the 28 EU member states will not be able to conjure the economic and financial challenges faced by them with the same degree of success. European solidarity necessarily means tailoring measures and conditions of assistance to each country in need of help in a manner which adequately addresses their constraints in a sustainable manner and is people centric. In a true spirit of solidarity, shouldn’t debt relief and technical assistance with measures to address Greece’s structural constraints such as revenue collection, corruption and a more viable model of operation to boost growth have been included in the bailout package to make it sustainable for Greece?
The IMF report on the Greek debt sustainability has already clearly put in question the Greek bailout deal. It states that ‘Greece’s debt can only be made sustainable through debt relief measures that go far beyond what Europe has been willing to consider so far.’ The IMF fundamental conclusion is that Greece will not be able to borrow at affordable rates, until its debt burden is lower. Let us hope that with the cue from the IMF, true solidarity and economic sense prevail.
* * *
The Iran nuclear deal: from pariah to partner
On 14 July, the French National Day, Iran and six world powers cut a game changing and historic deal that would limit the Iranian nuclear program in exchange of economic sanctions relief.
After about nine years of on and off talks, the deal was concluded following some 20 months of intense negotiations. In the deal, basically all pathways to building a nuclear bomb by Iran have been cut off. Iran will scale back its nuclear activities. This means reducing its uranium stockpile by 97%, reducing the enrichment level of uranium to 3.67% (when the requirement to building a bomb is 90%) and cutting down the number of centrifuges from 20,000 to 5,000 plus 1,000 for research and development needs. Rigorous inspections have also been agreed. There are also provisions that if Iran violates the deal, sanctions will ‘snap back’.
Trust was again a major factor. The West had been concerned about Iran’s alleged covert ambition to build a nuclear bomb whereas Tehran has always asserted that its nuclear programme is solely to generate energy for civilian purposes. The agreement negotiated between United States, Britain, France, China, Russia and Germany and Iran snuffs out one of the major sources of conflicts in the world. In the end it was a win-win situation as both parties obtained what they wanted.
It has however provoked anger in Israel, Saudi Arabia and certain parts of the Middle East. In a rabid tone, Israel stated that the deal frees Iran to sponsor terrorism as the lifting of sanctions will give them access to billions of dollars of revenue while assembling expertise to build a bomb. They intend to lobby the US Congress to vote against the Iran deal when it is submitted for approval as well as ask for ‘compensation’.
The Iran deal will become part of President Obama’s legacy. His initiative started a process of negotiations led by Secretary of State John Kerry which ended in the accord. He was able to strike a historic deal in spite of intense opposition and lobbying by Israel. In December 2014, in an effort to end old rancours when there is a will to do so, he also took the initiative to normalize relations with Cuba after 54 years of strained relationship. Defusing poles of possible conflict in the world significantly improves the perspective of peace in the world. This agreement helps make the world safer and more secure as it removes tension between Iran and the West in a region which is already a hotbed of conflict between Iraq, Syria, the Kurds and the forces of the Islamic State. It also strengthens the world’s objective of putting a cap on nuclear bomb production capacity and eventually eliminating it.
For Iran, which has a market of some 78 million people, a highly educated population, a diversified economy with leading industries and adequate infrastructure, the deal will give a quantum boost to growth and enhance the well-being of the people. As a major oil producer, once sanctions are lifted, Iran would be able to develop more trading ties with partners across the world and emerge as an important player in the region. It is however important that Iran uses its new status to help promote and be an architect of peace and stability in the Middle East, bearing in mind its support to allies in various countries of the region.
The deals contracted in the past week depict such contrasting fates for Greece and Iran. Europe, which owes so much to Greek civilization and its rich legacy of ideas and values, has to change tack in the light of the IMF comments and more adequately support the Greek efforts out of its crippling indebtedness with relief to usher, as in the case of Iran, a brighter future for its people from the doldrums of the past years.
- Published in print edition on 17 July 2015