Greece Wants a Debt Break. What About Its Poorer Neighbors? Bulgaria, Albania, and Macedonia want debt relief, too
Albanian Daily News
Published January 30, 2015

By Stephan Faris

Tsipras's first official act as Greece's new prime minister was to lay a small
bouquet of roses at the site of a World War II memorial. It marks the execution
by firing squad of 200 mostly communist activists by Nazi soldiers.

The move was highly symbolic, and not only because Tsipras heads
a party named Syriza, an acronym for the Coalition of the Radical Left. The
40-year-old prime minister's rise to power has put him on a collision course
with Germany, as he struggles to deliver on his campaign promises to renegotiate
his country's debt and overturn the painful austerity demanded by Greece's

But if Tsipras is to bring home the deal he feels Greece
deserves, he will have to do more than face down the Germans. He'll have to win
over skeptical taxpayers in other euro zone countries, reassure European
leaders worried about insurgent challenges of their own, and make the case--in a
Europe still reeling from the 2008 global financial crisis--that Greece is
uniquely deserving of assistance.

Even after seven years of devastating recession, Greece remains
much richer than most of its neighbors. Its gross domestic product is $22,000 a
person. Albania's is $4,000, Macedonia's $5,000. In Bulgaria--like Greece, a
member of the European Union--it's $8,000.

"It's very difficult to make the point to a worker in Bulgaria
that they should give part of their taxes to help people in Greece who are
richer than they are," said Ruslan Stefanov, director of the economic program
at the Center for the Study of Democracy, which is in Bulgaria's capital,
Sofia. "If you are spending money like that in Greece, you should spend money
in Bulgaria and other Eastern European countries. This is an argument that is
being made by politicians here."

There's no denying that the situation in Greece is
heart-wrenching. The country has suffered economic ruin on a scale usually seen
only in times of war. The crisis has shorn away nearly a quarter of Greece's
GDP. The unemployment rate is 26 percent, higher than that of the U.S. at the
height of the Great Depression. Among the young, it has topped 50 percent.
Families have been plunged into poverty. The private sector has been gutted.
The public sector is in shambles.

And yet the alternative to austerity is money, and the money has
to come from somewhere. Just as Tsipras would suffer if he tried to return
empty-handed to the Greeks who elected him, so would politicians in countries
such as Germany if they tried to sell debt forgiveness to national
parliaments and voters.

The European Commission, the European Central Bank, and the
International Monetary Fund, collectively known as the troika, hold some Ä240
billion in Greek debt, the largest chunk of which&mdash:some Ä70 billion
euros&mdash:is ultimately backed by taxpayers in Germany, where there is
little sympathy for a country many believe has lived beyond its means.

"There's a feeling in Germany that we've made concessions over
and over again," said Marcel Fratzscher, president of DIW Berlin, an economics
research institute, and a professor of macroeconomics and finance at Berlin's
Humboldt University. "What is the red line in Germany that nobody wants to see?
The word 'haircut.' Nobody wants to see debt forgiveness." 

Officials of Tsipras's party like to point to Germany after
World War II, when the country received not only reconstruction funds through
the Marshall Plan but also large-scale debt relief. Tsipras has said he will
demand that Germany pay war reparations for the damage caused during the Nazi
occupation of Greece and ask Berlin to repay, with interest, a loan of $14
billion the Greek government was forced to provide at that time. It's hard to
see how any deal palatable to German taxpayers--the reorganization and extension
of Greek debt in exchange for concessions on the structure of its economy--could
be accepted by Tsipras or his electorate.

Tsipras has little leverage but has been far from conciliatory.
He chose as his coalition partner  the Independent Greeks, a hard-right
nationalist party whose only point of agreement with Syriza is its opposition
to the conditions imposed on the country by its creditors. Immediately after
taking office, Tsipras--who as recently as 2012had a photograph of a crowd celebrating the
1959 Cuban revolution hanging outside his office--had his first clash with the
European Union, over calls for new sanctions on Russia.

The alternative to a deal--an eventual Greek default and exit
from the euro zone--could hit European and global economies, but Greece would be
by far the most damaged, as depositors raided their bank accounts and capital
fled the country. For much of the rest of the EU, debt forgiveness could be
equally damaging, undermining future efforts to manage European finances while
providing a precedent for other countries to default on their obligations. In
such countries as Spain and Ireland, agreeing to help Greece could
undermine support for centrist governments.

"They would be empowering their own opposition parties," said
Justin Knight, a strategist at UBS in London. "It's another bit of contagion."

Greek public-sector wages rose by some 60 percent in real terms
between 2000 and 2008. At least a portion of Greece's economic devastation can
be considered a correction. "Partly, it reflects the deflation of a bubble that
was built up by excessive spending," said Fratzscher.  Yet Tsipras has
been quite clear about his desire to roll back many of the measures
carried out at the request of Greece's creditors. He has pledged to boost
public spending, raise the minimum wage, and roll back changes to the country's
labor regulations. 

Bulgaria went through its own debt crisis in the 1990s, losing
roughly a third of its GDP, and has only recently finished paying back the
money it borrowed during socialist times.

"There is a clear understanding that Greece has not done enough
to request more help from its partners in Europe," said Stefanov. Like
Bulgaria, Greece is a net beneficiary of the EU, receiving far more than it
sends to Brussels, in agricultural subsidies and funds the union allocates
to its poorer states. From 2014 to 2020, it is slated to receive more
than Ä17 billion from the EU.

"Greece has been receiving EU funding since 1982. I mean, come
on, it's been quite lavish funding," Stefanov said. "Is this not a
Marshall Plan?"


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