THE EU'S TROJAN HORSE

This past year proved to be quite difficult for European countries in the midst of the protracted financial crisis. And the country most affected by the negative developments has been the EU's most problematic country - Greece. Since 2010, the country has been unable find a way to pay off its multi-billion euro debt, and now the European Central Bank (ECB) is preparing for Athens to officially announce its exit from the eurozone.

The key message of the 1957 Treaty of Rome, which became the founding document for the unification of the European states that ultimately resulted in today's European Union, calls for "the progressive  rapprochement of the peoples of Europe". However, in recent years, that ideal has come under threat, undermined by its own political elite. Having convinced the Europeans to adopt a common currency, the supranational bureaucracy neglected to consider the mental differences and economic experiences of peoples that had been around for centuries, and in so doing, preserved the underlying fault lines and failed to allow for the effective  use of the multi-coloured mosaic of Europe's economies, and most importantly - a well-coordinated economic organism. With the beginning of the 2008 Global Financial Crisis, these cracks began to show, and today they are wide open, the obvious example of which is the seemingly never-ending Greek crisis.

Greece joined the EU in 1981, becoming the tenth member state of the European Community. Most of the Greek population believed that EU accession would raise the standard of living, strengthen the economy and reduce unemployment. However, in practice, belonging to a united European family had a very negative impact on the structure of the national economy, and in the past few years, Greece has lost much of its national sovereignty, given up an independent financial policy and fallen into serious debt.

For comparison: Before 1981, Greece had what was considered an industrial-agrarian economy with an average level of development. Nevertheless, the country developed textile, petrochemical, food and tobacco, mining, paper, cement, iron and steel industries. The basis of the economy of this Balkan state was third in the world in terms of the number of merchant vessels, tourism and agriculture.

Upon joining the united Europe, the Greeks were forced to abandon the policy of import substitution industries, and on matters of self-reliance, the country was subject to the rules of a pan-European division of labour. In fact, the Greeks were forced to build a post-industrial economy with a dominant service sector, and at one point it was third in the EU in terms of economic growth after Ireland and Luxembourg. In particular, the service sector's share of GDP increased from 62 per cent in 1996 to 75 per cent in 2009, while the industry and agriculture sectors' shares decreased significantly. After joining the EU, quotas were established for Greek companies to eliminate the overproduction of commodities, and this led to a noticeable reduction in fishing yields, and production of cotton, wine, citrus fruits, olive oil, canned fruits and vegetables, and a number of other products fell several fold. Before joining the EU, Greece was one of the world's largest exporters of agricultural products, and now they are one of the world's greatest importers. The sugar and textile industries completely disappeared over the past few years. As a result of a policy of privatising the economy which was strongly recommended by the European Union, the government was forced to withdraw from the lucrative maritime transport business, and it sold a significant portion of seaports, five major state-owned banks, telecommunications companies, construction materials factories, and stakes in the food industry. Guided by the principles of business efficiency and cost reduction, the new owners of the privatised facilities in many cases cut back production or changed their profiles, which usually led to an increase in unemployment.

Nevertheless, all this negativity was not much cause for concern during the first two decades of Greece's EU membership, as the flow of foreign investment - and more importantly, the seemingly unlimited flow of credit to the Greek state from European banks and international financial institutions (IFIs) - provided a sufficiently high level of income to the general population .

The sudden realisation only came with the onset of the global economic crisis, which was most strongly felt in the troubled southern European countries - Greece, Portugal, Spain and to some degree Italy, sliding into a prolonged slump under the weight of high unemployment and prohibitively large debt.

Today, the total amount owed to Greece's creditors is an astronomical 320bn euros, and despite numerous postponements, Athens simply cannot handle this debt.

In an attempt to head off the threat of a sovereign default and the potential collapse of the European Monetary Union, EU officials appealed to the International Monetary Fund (IMF). However, by that time, Greece's central bank was largely no longer responsible for the country's macroeconomic management - this power lay in the hands of the European Central Bank. Initially, in 2010, the IMF planned to grant the Greek government "exclusive access" to the IMF's resources, "the cumulative limit of 600 per cent" of the country's IMF quota. Instead, in April 2013, cumulative financing was programmed to peak at 3,212 per cent of Greece's quota.

The reason the IMF had to take on such huge exposure was Europe's initial refusal to contemplate debt reduction for Greece, owing to the authorities' fear that financial contagion would overwhelm the eurozone's firewall-free banking system. That decision resulted in uncertainty about the currency union's capacity to resolve the crisis and aggravated the contraction in Greek output. No wonder in 2013, the Fund admitted that its analysts knew that Greece's debt was not sustainable, but decided to go ahead with the program "because of the fear that spill overs from Greece would threaten the euro area and the global economy". In addition the IMF revised downward its forecast for 2014 Greek nominal GDP by 27 per cent. This cast doubt on the transparency and accountability of the Fund's debt-sustainability projections. 

Nevertheless, the new Greek government recently sent a formal request to Brussels asking that the credit agreement with the eurozone be extended for six months. If the European Central Bank (ECB) provides Greece with the 2bn euros it requested in the near future, then Athens can claim that they can pay off part of the debt owed to the IMF, thus preventing the threat of a default. That is why Greek Finance Minister Yanis Varoufakis explained that the ECB may allocate this amount as part of the programme to buy eurozone government bonds, which launched in February 2015.

However, despite the ECB's positive response, many experts today believe that the allocation of billions can delay, but not prevent Greece's financial collapse.

Restructuring and writing-off part of the sovereign debt could prevent such a collapse - this is the political platform with which Syriza recently won the parliamentary elections. Moreover, the new Prime Minister Alexis Tsipras said he would seek the write-off of hundreds of billions of euros in loans that have been spent on the stabilization of Greece's sovereign debt and partly to finance government spending.

It is difficult to judge how justified similar expectations are: European Central Bank representatives have stated that they will not take part in the write-off or restructuring of Greek debt. German Chancellor Angela Merkel has also excluded this possibility. Moreover, according to a poll, 48 per cent of Germans were in favour of a Greek exit from the eurozone. This number is not surprising, since it is questionable if Greece is capable of radically reforming its existing economic and political structures to meet the requirements set forth by the EU and the ECB in order to remain in its present state in the EU. For example, increasing its output of high-tech products by several fold, or tackling bureaucracy, corruption and other social problems, thus resulting in tangible GDP growth, providing a positive balance of payments and a budget with which to repay government loans.

In particular, the experts from the influential paper The Financial Times believe that only by eliminating the problems of the weak eurozone economies can the necessary conditions be prepared for a transitional union in which tax receipts are automatically transferred from rich regions, such as Germany, to the poor, like Greece. "But this will never happen, because the northern European states do not trust their southern neighbours, and it was with great reluctance that they extended the loan for Greece. It almost is not worth considering if they will agree to automatic transfers, which are typical for a union; they are not without reason to believe that the political culture of countries such as Italy and Greece, is radically different from the culture of Sweden and Germany," writes The Financial Times.

What, then, is the nearest exit for Greece and for other countries with similar economic structures? Eurosceptics have long reached the conclusion that it would be very difficult for countries like Greece to exist in the eurozone because they are unable to devalue the currency or reduce the debt burden through inflation.

But the economic fallout of a eurozone collapse may be even more dire. If Greece does make the so-called "dirty exit" from the eurozone, the country will at the very least face a serious financial crisis. The rest of the EU will also find themselves in a vulnerable position: as soon as one country leaves the monetary union, speculators will be on the lookout for the next victim ready to give up and leave. Given the fact that the fates of Italy, Spain and Portugal have long been a concern, the nonchalant attitude of the financial markets could quickly be replaced by panic, threatening the collapse of the entire eurozone and calling into question the survival of the European Union itself.

Whether or not this extremely pessimistic scenario will be fulfilled, only time will tell. In the meantime, the ECB is preparing for the fact that Greece might leave the eurozone, for which its staff are conducting internal simulations to see how to keep the remaining members of the monetary union together.