A few days ago I was about to devour a pizza in a restaurant in Venice when a Cuban waiter noticed that my mother tounge was Spanish. In two miuntes we were already talking about the hottest topic of the summer: The Greek Crisis.
Greece on the radio, Greece in the bar, Greece even in the pizza. The small Mediterranean country, birthplace of democracy, keeping half the world on tenterhooks shaking the foundations of the European Union (not only the Eurozone), and that only represents 1.6% of its GDP.
The Greek economy is trapped in quicksand. The trio previously known as Troika (Central European Bank, European Commision and IMF) has for five years been lending them thousands of millions at reduced interest rates in exchange for “much greater austerity, like a dead end alleyway”, as described by economic Nobel prizewinner Paul Krugman. Greece doesn't stop bleeding and the sand is up to its neck. From 2010 to now, its economy has shrunk by 25%, its public debt has gone up to 175% of its GDP and its rates of unemployment and poverty is rising unstoppably.
Even the IMF recognises that the austerity demanded of Greence will carry on deterioratig its economy at least until 2030 and admits that “to make significant concessions will improve the sustainability” of its exorbitant public debt. As I write these works, Wikileaks has leaked a cable from the NSA in which Angela Merkel shows doubts of the effectiveness of austerity to stop this crisis.
This Tuesday Greece crossed the red line of not paying out a pending payment with the IMF of 1,500 million euros. Ten hours later the Greek Prime Minister, Alexis Tsipras (Syriza), wrote a letter to the Troika asking for a third bailout. They responded that they would not discuss this until after the referendum this Sunday where the Greeks will tell their government whether or not they should accept the conditions of this new bailout.
Days have passed, the agreement hasn't arrived and the European leaders are rushing to calm things down over the Grexit. The nervousness implicated in such a reassuring message is most visible in the PIGS government (perjorative acronym for Portugal, Ireland, Greece and Spain). They insist that the economic situation is different from that five years before and that Greece didn't make good on their duties, but they did.
Through their economic burden, we could say that Portugal and Ireland play in the second division of the Eurozone, like Greece. However, Spain is the fourth largest economy of the Euro (11.2% GDP of the Eurozona), a much bigger boat to ride the storm of what is happening in Greece.
is there risk of contagion in Spain?
Yes, of course, and is is already coming through in two ways e está: financially and politically.
The economic contagion obeys the classic patterns, even if in this occasion the investors have been relatively cautious. On Monday the European Stock Markets opened with fear after a Sunday marked by the lack of an agreement with Greece. The Spanish benchmark index fell by 4% and the risk premium climbed to 150 points, a tumble that stays far from the turbulence of 2012. The Euro lost value against the American currency, falling from 1.12 to 1.10 Dollars per Euro, good news for economies much more dependent on its exports like the Spanish economy.
On the other hand, if Greece were to declare itself bankrupt and not pay even a single Euro more of its debts, Spain would lose around 26,000 millon Euros. This would raise the Spanish public debt by 2.5 per cent.
The political consequences of the Greek crisis for Spain are a palpable reality in day to day life. At the end of the year Spain is holding elections that will be marked by the emergence of Podemos, a formation that, despite their differences, sympathises with the vindications of Syriza and seeks to redefine the European dynamics.
To start with, Greece is setting a precedent un precedente of voting on a vital economic decision for its future. "The Greek people will face the consequences of the referendum", Said Luis de Guindos, Spanish Ecomonic Minister, after hearing the annoucement. The investors have also interpreted this democratic tic of the Governments of the Left as a symptom of weakness and instability. The Greek example and its eoncouraging discourse is contagious, especially aomgst the progressive-style parties like Podemos, who already is in power in the city halls of Madrid and Barcelona.
On the other hand, Greece's exit from the Euro would open the door to an unknown scenario, and could make the inthinkable happen. The legitimacy of the Europ and the European Union as a political and economic project would be tarnished before allowing one of its parts to fall, and a small one on top of that. The incertainity over the Grexit feeds doubts in the south of Europe that, after many years of tightening the belts, it has become a fertile field of ideas that before were unmentionable.
The other method of contagion is fear, a fashionable weapon in European politics that is spreading rapidly. A traumatic and painful outcome in Greece, with long queues for cash machines and other images of financial chaos, could be used as a pretext to pro-austerity governments, like Mariano Rajoy's, to put in place new privatisations and to pick up the scissors for cuts and fiscal agreements.
No doubt the Greek elections next Sunday will be decisive for Greence, Spain and the rest of Europe. We are celebrating in moderation.