If you were wondering why the EU is acting like a terrorist to Greece, the reason is there are more potential Greek Hostages in the Wings like Spain, Portugal, Italy etc.
However, then there is: "Cutting off your nose to spite your face." which unfortunately in the long run the EU appears to be doing as well. So, this behavior could easily end the EU.
The EU Shot Its Greek Hostage, Now Spain Is Nervous
In
a battle over banking regulation at the end of the Clinton
administration, former Republican Sen. Phil Gramm of Texas remarked on
the importance of being willing to inflict pain when negotiations don’t
go your way. In Spain, which is even more indebted than Greece, the
leftist Podemos Party has…
The Fiscal Times
Thu, Jul 16, 2015, 12:01 PM EDT - U.S. Markets close in 3 hrs 59 mins
The EU Shot Its Greek Hostage, Now Spain Is Nervous
By Rob Garver
July 15, 2015 9:19 AM
In a battle over
banking regulation at the end of the Clinton administration, former
Republican Sen. Phil Gramm of Texas remarked on the importance of being
willing to inflict pain when negotiations don’t go your way. “I don’t
take hostages I’m not willing to shoot,” Gramm explained.
The point Gramm was making is that once you demonstrate that you don’t make idle threats, future negotiations are easier.
Related: Wall Street Knows Greek Debt Drama Is Far from OverThe treatment of Greece by its European creditors may have had a similar effect.
In Spain, which is even more indebted than Greece, the leftist Podemos Party has been gaining influence, in part by making promises in line with those made by Greece’s Syriza Party. In May, Pablo Iglesias, the leader of Podemos, demanded that Spain’s debt be restructured and that debt payments be tied to economic growth.
“For
Spain to be able to meet its international obligations, we have to link
debt payments to economic growth and expansive job creation policies,” he said.
A similar argument had been made by former Greek finance minister Yanis
Varoufakis, who so aggravated his European counterparts that he was
eventually replaced.
The
reaction of Podemos to the punishing deal to enable another Greek
bailout was telling. After battling to the bitter end, Syriza was forced
to accept a humiliating offer from its creditors. In a deal primarily
driven by Germany and other northern European countries, Greeks face
pension cuts, huge tax increases, reduced services, and the forced sale
of $50 billion worth of the country’s physical assets.
In
Madrid on Tuesday, it was as though the Eurogroup, fresh from dealing
with Greece, had turned to Spain with smoking gun in hand and asked,
“What were you saying?”
The answer from Podemos’ top economic policy officer, Nacho Alvarez, was essentially, “Who, me? Nothing. Nothing at all.”
Speaking to reporters, Alvarez said that debt restructuring wasn’t really necessary after all. “Spain, he said, “is not Greece.”
Or so he must fervently hope.
“Greece
and Spain are different economies in very different situations which
demand different economic strategies,” Alvarez said at a press
conference.
Related: Why Greece Can’t Grow Its Way Out of This Mess
He
added, “Podemos and Syriza have different economic approaches” and said
that he is confident the country’s current programs to stimulate
economic growth will allow it to manage its debts.
Whether
Podemos has detected a significant shift in the country’s economic
future over the last two months or has had a change of heart more
related to the Eurogroup’s treatment of Greece is up for debate.
However, if part of the aim of Greece’s creditors was to punish Syriza pour encourager les autres, there seems to be little room for debate at all. It worked. In the near term, at least, it worked.
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