Eurosceptics do it better

euroscepticism On December 28th, there was an article in the Opinion pages of The Daily Telegraph that must have filled the hearts of most British eurosceptics with hope. In it, Leo McKinstry argued that “the EU is in desperate trouble”, for its “edifice of federalism is crumbling, broken by its own ruinous contradictions and spectacular failures”: the single currency and the economic policies it implies have, McKinstry writes, created a “political fallout” in countries like Italy, Greece, Portugal and Spain, where extremist parties have earned an ever greater support from the electorate; and the migrant crisis, he warns, is “threatening to tear apart the social fabric of Europe”, as “fiercely anti-immigration, anti-EU movements like the Front National in France, the Dutch Party for Free and the Swedish Democrats” also attract more and more voters.

Optimists and Europhiles might read these words and take them to be nothing more than gloomy wishful thinking to be expected from the reactionary Telegraph. But the same could hardly be said of The New York Times and its Sunday Magazine, which – in its December 20th issue – wondered whether the EU has “reached its breaking point”: Jim Yardley, the publication’s Rome bureau chief, noted how Europe is facing the simultaneous threats of terrorism in its cities, of an aggressive autocratic Russia in its periphery, of the migrant crisis in its borders, while a stagnant economy and a rising political extremism in countries like France and Belgium are rotting their democracies from within. And to complicate things further, Yardley argued, the EU is particularly ill-suited to deal with such issues: “European Union institutions have vast regulatory powers over everything from data roaming to environmental standards to trade deals to antitrust rules”, but “often lack the structural power, political decisiveness and bureaucratic efficiency to act collectively when faced with big, unforeseen problems like the Greek crisis, the surge of migrants or the standoff with Putin over Ukraine. National leaders are often forced to decide these issues in marathon emergency meetings in Brussels at the European Council, and even then, only incremental progress is made”, producing “a perfect recipe for public cynicism: a system of intrusive regulators whose tentacles can spread into your personal life, even as leaders appear indecisive in the face of genuine crises”.

And yet, in Brussels, no one either is aware of these problems or seems to care. On the last December 11th, The Guardian reported that the EU Commission was devising plans to “to strip national governments of authority over their borders in an emergency and to create a border guards force to police the EU’s frontiers, supervise asylum claims, and detain and deport failed asylum seekers”, in response to the refugee crisis. As Ian Traynor, the report’s author, explained, while “in theory, the new regime and the powers ceded to Brussels over its operation apply to all 26 countries in Europe’s free-travel Schengen area”, it would, “in practice”, only “apply to the external borders of the Schengen area, so would not greatly affect countries such as Germany that are surrounded by other Schengen nations”.

In other words, some countries – Italy, Greece, Spain – would be subjected to policy decisions taken by other countries – Germany, Poland, Austria – that would not bear the brunt of their consequences. Perhaps these plans won’t ever be put into effect, once the lawmaking process in Brussels stalls and indecision takes over. But the mere fact that people with responsibilities within the EU came up with such an idea is a sign that “euroenthusiasts” have failed to grasp what the events of the last decade or so should have made clear to them: that the EU has gone too far in the political “integration” of its member states.

Since its conception, the “European project” was meant to bind the countries that joined it in such a manner that going to war with one another would never again be in their interest. It began by pooling together the energy resources of France, Germany, Italy, Luxembourg, the Netherlands and Belgium within the European Coal and Steel Community. And it grew, not only geographically (with the multiple enlargements taking in new members) but in scope, with consecutive advances in transferring powers and (in “Eurocrat” parlance) “competences” from national states to Brussels. After all, the “project” was always meant to achieve an “ever closer union”.

“Europe’s” founders, however, understood how that process should only be carried out by way of “small steps”, to ensure that none of those ever jeopardized the fundamental interests of the club’s membership. But from the 1980’s onwards, with the European Single Act and the road towards the 1992 Maastricht Treaty – and later culminating in the Lisbon-Treaty-Formerly-Known-as-The-European-Constitution, that prudent outlook was discarded.

And so it was that, for the last 30 years, the “steps” taken by “Europe” have been too great, both in quantity and in length. The increasing number of policies subject to qualified majority voting and of powers transferred from national parliaments to the “Community’s”’ sphere meant that in a growing number of issues the various countries of the EU have lost the power to defend what their electorates believe – rightly or wrongly – to be their own national interest. The result, aside from weakening the health of each nation’s democracies, was to change “Europe” into a conflict-generating machine between the various European countries, instead of the peace-building institution it was meant to be.

Back in 2003, just as the “Union” became far from united on whether to side with the Americans on their intervention in Iraq or not, Valery Giscard d’Estaing and the other proponents of the “Constitution” kept pushing for a Common Foreign Policy and a Common European Army. At the time, the Portuguese columnist José Pacheco Pereira wrote an op-ed piece warning that if such plans were brought into effect and a situation like the dispute over the Iraq war would arise, what in 2003 was a simple difference of opinion between sovereign countries with diverging interests, would by that point turn into an institutional conflict within the EU, leading to its disintegration and possibly worse.

Looking back, it’s easier to see that Pereira didn’t need to imagine such a scenario. There already was – and still is – one not-merely-hypothetical-but-very-much-real factor bringing discord into the “Union” and threatening to pull it apart: the Euro.

What happened with the EU’s single currency was exemplary (albeit in the worst sense the word can have) of the problem. It was born, as most things in “Europe” are, out of a bargain between France and Germany, in which the former supported the latter’s unification, and Germany gave up its old currency and at least some control over its traditionally tight monetary policy. It allowed for a gigantic leap, symbolically and practically, towards a true “European Union”, a political entity with powers previously intrinsically linked with national sovereignty. What it created, however, was far from the harmonious and free-from-nationalist-and-self-interested-feelings space from Monchique to Cape Greco and Limassol to Nuorgam in which everyone would join in singing the “Ode to Joy” in multiple languages but in tune and in unison.

By joining within the same monetary area economic realities so distinct as to make them have incompatible economic policy needs, the Euro meant, on the one hand, a currency undervaluation in Germany with the corresponding loss in value of its citizens’ income, and on the other hand, a currency overvaluation on countries with less competitive and attractive economies (like Greece or my native Portugal), posing significant obstacles to those who, unfortunate enough to live in them, wished to export goods or services that could otherwise have benefited from a weaker currency that would make them more appealing to holders of stronger currencies.

At the same time, and to make matters worse, the euro created a bubble in those countries’ sovereign debt bonds: comfortably seated under the same monetary umbrella that sheltered Germany; theoretically obliged to meet certain budgetary criteria aiming to protect the euro’s stability; and with the implied promise that, should things unravel, the simple fact that they shared a currency would make countries like Germany pay for the solvency of countries like Portugal, Greece or Italy; these countries were able to borrow money for German-level interest rates, while following Greek-style budgetary policies. Once the subprime crisis in American crossed the Atlantic, it didn’t take long for the monetary umbrella to become powerless to shelter them from the fears of their creditors.

Once Greece or Portugal were on the brink of bankruptcy and had to be bailed out, the need to do so without jeopardizing the euro’s credibility as a stable currency created the terrible combination that has brought us to our current predicament: paying for the “bailout packages” by the richest countries angered their voters due to their perception that they are paying for the “sloth” and “profligacy” of the other countries; in Greece or Portugal, the “harsh” measures and the loss of budgetary autonomy inherent to those packages and the EU’s Budget Treaty made their electorates despise the “lack of solidarity” of the “austeritarian” rich; and the solutions that might help overcome the worst economic and financial consequences of this arrangement – a deeper economic and political integration, with Eurobonds, euro-wide welfare benefits, and new and wider “competences” over national budgets given to the (undemocratic) EU institutions – would end up worsening not just the problem of the lack of democratic control of political decision-making, but also – especially – that increasingly serious “war of electorates” created by the way the euro and the EU were designed.

One thing “euroenthusiasts” are not able to say is that they hadn’t been warned. For exemple, in 1997, the Nobel laureate in Economics Milton Friedman famously wrote an article in which he argued that the Euro would be a huge mistake: The EU, Friedman argued, lacked the prerequisite attributes that would allow for a sensible adoption of a common currency between its member states:

“Europe’s common market is composed of separate nations, whose residents speak different languages, have different customs, and have far greater loyalty and attachment to their own country than to the common market or to the idea of “Europe.” Despite being a free trade area, goods move less freely than in the United States, and so does capital. The European Commission based in Brussels, indeed, spends a small fraction of the total spent by governments in the member countries. They, not the European Union’s bureaucracies, are the important political entities. Moreover, regulation of industrial and employment practices is more extensive than in the United States, and differs far more from country to country than from American state to American state. As a result, wages and prices in Europe are more rigid, and labor less mobile. In those circumstances, flexible exchange rates provide an extremely useful adjustment mechanism.”

Adopting the Euro, then, Friedman warned, “would have the opposite effect” of what its advocates intended:

“It would exacerbate political tensions by converting divergent shocks that could have been readily accommodated by exchange rate changes into divisive political issues. Political unity can pave the way for monetary unity. Monetary unity imposed under unfavorable conditions will prove a barrier to the achievement of political unity.”

And Friedman was far from a lonely voice. Today, as the EU and its various member states face the refugee crisis and its political consequences, it would be wise of them to mind the lesson of the euro cautionary tale: sometimes, Eurosceptics do it better; sometimes, a healthy dose of Euroscepticism is exactly what “Europe” needs if it wants to be healthy. The EU was a stabilizing element in the European continent for decades because it served the interests of those who’d joined it. By taking too many steps too far towards “an ever closer union”, those countries lost their ability to protect those interests. And by making itself unable to serve its members’ interests, the EU is making it ever more likely that one day, those countries will no longer be interested in being a part of it.

 

Bruno 2014Bruno Alves lives in Caxias, Portugal, but sometimes wishes he didn’t. He writes about politics, film and TV for O Insurgente, is an op-ed contributor to the Lisbon daily Diário Económico and a weekly commentator for its cable TV channel ETV, and has written for the American online film magazine Bright Wall/Dark Room and for the British website CapX. Bruno welcomes both writing job offers and insults at alves.bm@netcabo.pt, and you can also find him on Twitter @ba_lifeofbruno.

What the hell is going on in Portugal?

AP120322132487-750x400A couple of weeks after the October 4th parliamentary elections in Portugal, I met a friend of mine who was visiting the country, and it didn’t take long for the subject to take over the conversation. My friend, whose face Plato must have envisioned when he imagined the Form of adorableness even though she was born only a few decades ago, left Portugal to take advantage of a job opportunity abroad, and living far away from the country she naturally doesn’t follow the day-to-day details of Portuguese politics as closely as someone who persists in trying to survive here. After all that had come to pass since Election Day, the only thing that occurred to her was to ask “what the hell is going on in this country?” She hasn’t been the only one asking this question.

On November 24th, President Aníbal Cavaco Silva, a former Prime-Minister from the center-right party PSD, nominated António Costa, leader of the center-left Socialist Party (PS), as the new Prime-Minister. On October 4th, no one would have foreseen such an outcome. After four years of implementing severe austerity measures, the governing center-right coalition between PSD and CDS emerged from the proceedings with the largest share of the vote (36,8%) and MPs (107 out of 230), while PS and Costa wasn’t able to get more than 32,4% and 86 MPs; the extreme-left party Bloco de Esquerda (BE) managed to obtain 10,2% of the votes and 19 MPs, while the Communist Party (PCP) and their satellite party Os Verdes – ‘The Greens’ – got 8,3% and 17 MPs (the animal rights party PAN elected the remaining one, with 1,4% of the votes). The next morning, the London’s Daily Telegraph reported Portugal had “made political history” for having the first government “in the euro’s five-year lurch from debt crisis to debt crisis” to get re-elected after ‘overseeing a bail-out programme’; The American Interest hailed the result as a “victory of ‘un-populism’”, in which – in contrast to what had happened in Greece – ‘the anti-establishment parties have not been able to present themselves as real contenders for power’. Even the understandably-less-enthusiastic (left-lwaning) The Guardian said “the result shows that Portugal is not Greece” and provided “an opportunity for the two main parties to cooperate”. Yet just a few days later, things changed so dramatically that one could be led to erroneously believe that another election had taken place in the interim.

Even as President Cavaco Silva approached Pedro Passos Coelho (the incumbent Prime Minister and leader of PSD) and asked him to try to form a new government, António Costa announced he was to engage in meetings with both the Communists and BE to form a government with the support of a parliamentary majority. On the right, Costa’s initiative was seen as a coup d’etat, an attempt to climb into power even after losing the election; on the left, the coup d’etat accusations were directed at Cavaco Silva for nominating Passos Coelho even though he was sure to lose a parliamentary vote of confidence. To make matters even more confusing, the (conservative) Telegraph’s Ambrose Evans-Pritchard sided with the latter, claiming the President had “refused to appoint a Left-wing coalition government even though it secured an absolute majority in the Portuguese parliament and won a mandate to smash the austerity regime bequeathed by the EU-IMF Troika”. In fact, PS, BE and PCP were yet to reach an agreement by October 25th, the day Cavaco Silva nominated Coelho to try to form a “stable government”, so there still was no absolute majority that would justify bypassing the party with the largest share of the vote.

On November 6th, just three days before the parliamentary vote of confidence the PSD/CDS coalition would have to face if it were to remain in power, the agreement was closer but still hadn’t been finalized. The Telegraph reported: “Communists ready to assume power in Portugal and topple conservative government”, which wasn’t totally true: the deal in store would not contemplate an actual participation of neither BE nor PCP in the government; they would merely support a Socialist government in exchange for a few policy measures they deemed fundamental for the country’s well-being (public sector and minimum wage raises, tax cuts, cancelling public transport’s privatization).  Communists wouldn’t “assume power”; they are propping up PS into power in order to secure benefits they regarded as crucial to the country and the interest groups that support them.

Back on October 4th, the chattering classes hurried to interpret the coalition’s then-still-regarded-as-such victory, and many believed that, faced with a still looming uncertainty and far from being safe from financial difficulties, the Portuguese electorate put aside their poor opinion of the coalition and voted for the devil they knew:  they might decry the austerity that had been imposed on them, but they were reluctant to empower the Socialists (who had been responsible for the near-bankruptcy that brought austerity on) for that would carry with it a degree of uncertainty that looked frightening to them, considering the country’s yet-to-be-overcome predicament. I might be mistaken, but it seems to me that Costa was one of the people who held this interpretation of the election results. It seems to me that Costa believes that the reason why PS failed to take advantage of all the anger against the incumbent government (two days before the election, a poll revealed that only 19,7% of the people thought PSD/CDS had improved the country’s condition) was that people were gripped by a conservative fear of the unknown, and that if PS managed to get into government and had the opportunity to introduce a few popular measures easing austerity, that same impulse to go with “the devil you know” would hurt PSD/CDS instead of the Socialists in a future – probably early – election.

Costa, like the Telegraph, The Guardian, The American Interest or my friend, didn’t understand “what the hell is going on” in Portugal. The result of the election showed two things: first, a huge dissatisfaction with the job the coalition had done; and second, an even more significant lack of trust in PS as a credible alternative. Going into government after it failed to look like a preferable choice than a failed government, PS would likely also fail to overcome that pre-existing distrust: Costa’s every decision would be confronted with the same lack of credit he and his party merited in the election; even the “popular” measures he plans to introduce would in all likelihood be regarded as shameless attempts to buy votes, policies “too good to be true” that would end up costing much more in the near future with another bail-out programme than they would pay in the short-term, and instead of propelling into the electoral victory that escaped him this time around, it would cause him to suffer an even more resounding defeat whenever his government were to face the voters’ judgement.

Costa has seriously misjudged the nature of the crisis afflicting Portugal’s political system: far from resulting from a simple – and circumstantial – lack of a parliamentary majority, it consists of a structural lack of trust in every available political alternative by a huge chunk of the electorate, that even after rescinding their support from one party neglects to transfer it to the main opposition party, instead choosing either to vote for a protest party with no chance to win or to stay at home (the turnout in this election was the lowest ever in a parliamentary election in Portugal). As with many of the problems the country faces, it is a situation caused by the inability of every government of any party to tame the Leviathan that is the Portuguese State.

Passos Coelho’s government inherited and –despite its rhetoric – kept a statist monster that suffocates Portuguese society: the State keeps spending half of the wealth created in the country; the services it aims to provide are largely ineffective; the supposed egalitarianism of a “Welfare State” that aims to provide everything to everyone – to those who need the helping hand of the State and to those who don’t – turns into an unfair system that – precisely because it wants to provide for those who need it and those who don’t – ends up giving too much to don’t who don’t need it and not enough to those who do; and to make matters worse, the State needs to extract more and more wealth from the pockets and bank accounts of its taxpayers in order to feed this Behemoth.

People naturally dislike this situation and what it means for their daily lives. And yet, about 60% of them are (according to estimates by Henrique Medina Carreira, a former-Finance-Minister-turned-commentator) directly or indirectly dependent on State money to conduct them. That, in turn, results in a seemingly unsolvable puzzle: people are simultaneously dissatisfied with the status quo and opposed to its reform; every government, whether it chooses to keep things as they are or to fight the interest groups opposed to reforms, is then doomed to be punished with the electorate’s wrath. And the lesser the electorate at large supports any political alternative, the more every main party becomes dependent on those interest groups that are dependent on the status quo, thus making reforms even less likely, the consequences of this ever more grave, further marginalizing a large part of the electorate and consequently deteriorating the country’s condition.

Come to think of it, maybe my friend is the one who fully understood the mess Portugal is in, and was wise enough to go live somewhere else.

 

Bruno 2014Bruno Alves lives in Caxias, Portugal, but sometimes wishes he didn’t. He writes about politics, film and TV for O Insurgente, is an op-ed contributor to the Lisbon daily Diário Económico and a weekly commentator for its cable TV channel ETV, and has written for the American online film magazine Bright Wall/Dark Room and for the British website CapX. Bruno welcomes both writing job offers and insults at alves.bm@netcabo.pt, and you can also find him on Twitter @ba_lifeofbruno.

What’s next for Portugal?

naom_534af975b6b0eLike it has always happened for the last 40 years of democracy, the Portuguese President asked the leader of the most voted party to form government. Like every president before, he gave a political speech on what he believes the next government should do. He is also far from being the first president to warn about the risks of having communists in power. But, unlike what has always been the democratic tradition, the second most voted party will not allow the most voted party to form a minority government. It is their constitutional right to do so. So what is next? Here is what the future holds for Portugal:

Over the next few weeks:

1. The current PM will form a government with some people of his close group MPs and a few moderate party members. It will be hard to get good names on-board for a government that might not be around for more than 2 weeks
2. The government will not pass in parliament due to the votes of the socialists, left radicals and communists
3. The president will then ask the leader of the 2nd most voted party to form government. The supporters of the idea of a coup in Portugal will be saying some other nonsense about some other country
4. Costa will form a government without members of the radical left or the communists. Radical left and communists let the government pass in parliamentary vote.
5. President Cavaco will warn about the lack of stability of the new solution and once again defend the tradition of the defeated centrist party to allow the other centrist party to lead the government

In November-January:
6. The socialist party will have to get its first budget approved. In order to do so, it will make changes in the labour law (making the labour market rigid) and eliminate some of the expense cuts of previous governments in agrrement with Left Radicals.
7. The first draft will not be approved in Brussels, but after a few rounds and over-optimistic assumptions on growth and tax collections, the budget will be approved in Brussels and by the Portuguese parliament
8. The minimum wage will increase in January
9. The centrist candidate Marcelo will be elected president in January. During the campaign, he will be intentionally ambiguous about what he would do in different political scenarios.

After January:
10. Growth will continue the path of 2015 but employment will stop increasing at the same rate
11. The left-wing parties will be united in the first months of the year. A short-lived increase in consumption will be used as proof that ending austerity works. External balance will deteriorate. Left parties will change labour law, banking regulations and increase capital taxes.
12. After missing the original budget targets, the government will have to get a new revised public budget approved somewhere in April. This will be a hard one.
13. If the communists don’t approve it, and the right wing parties do not change leadership, the revised budget will not pass in parliament and the government will fall
14. The socialist party will accuse the right wing pro-european parties of being irresponsible for not approving their Brussels negotiated budget. Brussels will put pressure
15. New elections in June
16. If the communists approve the budget, the government will stay in power until the end of 2016. Around that time, the budgetary difficulties for 2017 will be impossible to address by a government with support from communists and left radicals. The wounds of a 1 year unexpected and unwanted coalition will become obvious.
17. Points 13 and 14 will happen anyway just a few months later.
18. Elections in March 2017.

The six graphs that explain what’s affecting the upcoming Portuguese elections

Many wonder why, after reducing public pensions, salaries, among other austerity measures, the government coalition ends the campaign ahead in the polls. Pedro Magalhães, a portuguese political scientist explains why. Here is a summary:

Austerity: after an initial austerity shock, the last 2 years saw a loosening of the austerity belt.

figure1

The widely antecipated recessive spiral from the initial austerity measures did not happen (both in unemployment and GDP)

Figure-2

Figure-3

Moral and confidence is increasing, both in terms of confidence in the economy…

figure4

…and consumer confidence:

Figure-5

After an initial recovery, the socialist party has failed to keep growing in the polls after the economic recovery started. Most voters do not believe the Socialist Party would have done a better job in the last 4 years.

Figure-6

Worth reading the full article in the Washington Post.

Three large polls released today indicate political instability for the next months

The most comprehensive polls developed in this campaign were released today, 3 days before the election. Interestingly, the three have similar results: Government coalition (center-right) winning but with a left-wing majority in parliament.

If these are to be the final results, there will be a hung parliament with no clear government coalition. Cavaco Silva, the outgoing president, announced that he will break protocol and will not be present in the Republic celebrations on Monday due to the need to solve what is likely to be a very difficult post-election period. The socialist party already announced they would embark in a grand coalition and would prefer to join forces with the left. The left doesn’t seem to be interested in joining government (the communists wouldn’t do in any case and the Left Bloc wants to avoid Syriza’s faith).

Adding to this, there is the real possibility that despite losing the elections, the Socialist Party will elect more MPs than any other party. The government coalition is made of two party running together, but after the elections there will be two party groups in parliament, but potentially smaller than the Socialist Party’s. This adds an additional complication: traditionally, the PM comes from the most voted party who is also the party having the most MPs. This time, as two major parties are running together, the winning list might not include the party with more MPs. There is no precedent of the in Portuguese democratic history.



Interesting days ahead.

Daily polls (9 days to go)

In orange, the government coalition; in pink, the socialist party; in red, the communist party and in black, the left Bloc.



The government coalition continues to lead both daily polls with a 5-7pp advantage over the socialist party. The socialist party leads the Eurosondagem poll (not a daily tracking) by 0.5pp.

Greek political spectrum goes full circle in 6 years

The Left Platform has announced its break-up with Syriza, thus becoming Syriza’s Syriza for the next elections. Assuming they manage to get 20% of Syriza’s votes, the Left platform will get 8% of the votes in the next elections. According to the latest polls, this will give us the following results:

Syriza (now a moderate pro-austerity left party): 34%
New Democracy (moderate pro-austerity right wing party): 22%
Left Platform (extreme-left anti-austerity): 8%
Golden Dawn (extreme-right anti-austerity): 7%
To Potami (centrist): 8%
KKE (communist): 6%
ANEL (populist right): 5%

Six years ago, the results of the hellenic parliamentary elections were the following:

PASOK (moderate pro-austerity left party): 44%
New Democracy (moderate pro-austerity right wing party): 33%
KKE (communist): 8%
LAOS (populist right):6%
Syriza (by then extreme-left anti-austerity):5%

Do you see any relevant difference? I don’t. Six years later, Greece will have again a left pro-austerity party winning the elections, a moderate righ-wing party trailing behind, and an extremist anti-austerity left-wing party in the single digits. In politics, as in so many other areas, regression towards the mean is a powerful force .

Greece: reminder – how did it all start

Greece joined the Eurozone in 2001. From that moment, it had an amazing growth. While other countries, like Portugal, went through a “lost decade”, Greece saw its GDP grow by 32% in 7 years. In the same perio, Portugal’s GDP grew by 9% and Germany’s a little more than 11%.

gdp

With this GDP growth came a tremendous growth in wages. Between 2000 and 2007, wages and salaries grew by an astonishing 75%, almost triple the growth in Portugal and 10 times more than Germany.

wages

With the salary growth, greeks increased their standards of living. In these 7 years, consumption grew by 33%, while in Germany it stagnated and in Portugal it grew by a third.

consumption

How was this increase in standards of living possible? There was no technological revolution in Greece, there was no influx of international investment like in Ireland and no natural resources were found in the Mediterranean. This was achieved thanks only to an extraordinary increase in public debt, a big portion of it masked in the official accounts. It was like Portugal, but on steroids.

pubspen

So, we are in 2008, the Greeks had increased their standards of living like never before. But that increase in standard of living had only been achieved thank to a significant economic distortion. That high standard of living was only possible as long as there was someone available to loan the money required to keep it. A big part of the economy only existed thanks to the high level of public spending fueled by external debt. When the state would stop being able to fund itself, that share of the economy would simply disappear.
That is what happened in 2008-09.

(source of data in charts: Eurostat)

European leaders did not reach an agreement with Greece. Greek PM threatens to withdraw from the union, NATO and close United States military bases in Greece

Keep calm: this was 30 years ago. By then Greek prime-minister Andreas Papandreou (yes, the father) was also involved in late-night talks with european leaders. By then Greece was threatning to veto the entry of Spain and Portugal into the common market the following year. In exchange for lifting the veto, Greece was demanding 2 billion dollars in special agricultural aid.

It is worth reading the full 1985 article of The New York Times. Threats of Grexit, domestic political pressures, an european consensus against Greece and a trong female leader losing patience: it is all there. Things really haven’t changed much.

BRUSSELS, Saturday, March 30— Western European leaders of the Common Market began crucial negotiations here Friday night with Prime Minister Andreas Papandreou of Greece, who has threatened to veto the entry of Spain and Portugal into the market next year.

After late-night talks with Mr. Papandreou, the leaders said early today that he stuck by his vow to block the two countries unless the other market members gave Greece nearly $2 billion in special agricultural aid.

Greece has said it needs the money to offset the effects on its economy of increased competition from Spanish and Portuguese products when those nations join the market, formally called the European Economic Community.

The European leaders gathered in Brussels on Friday afternoon, just hours after their foreign ministers worked out terms to make Spain and Portugal the 11th and 12th members of the trading group. It was thought that the ministers’ accord had brought an end to several years of negotiations over the entry of the two nations. Chairman Expresses Disappointment

But today, the meeting’s chairman, Prime Minister Bettino Craxi of Italy, told reporters he was ”disappointed” by the lack of agreement so far in talks with Mr. Papandreou. Other high Italian officials said a settlement seemed unlikely at this two-day meeting.

A spokesman for Prime Minister Margaret Thatcher of Britain said of the negotiations Friday night, ”Frankly, we are not getting anywhere.” The British spokesman said all the other Common Market governments were ”delighted with the enlargement agreement.”

Many of the leaders called the accord on the complex package of membership terms, which Greece had accepted, a historic step in Europe’s quest for greater unity.

”The European Community is alive and in the final phase of its completion,” Prime Minister Wilfried Martens of Belgium said Friday as the session opened.

Mr. Craxi said, ”Europe is now finally achieving its true shape.”

Admitting Spain and Portugal should also help the Common Market solve its longstanding fiscal problems and enable it to concentrate on strengthening free trade between the members and building up their industrial and technological base.

(…)

Threat Carries Weight

Mr. Papandreou can carry out his threat because the entry of the new member nations will go before the parliaments of all the Common Market members, as well as the parliaments of the two countries seeking membership. If approved, Spain and Portugal would become members on Jan. 1, 1986.

Other market members also take Mr. Papandreou’s threat seriously because of his long record of provocative statements against other Western powers.

In particular, Mr. Papandreou has threatened to withdraw from both the Common Market and NATO and to close United States military bases in Greece.

At the last high-level meeting of Common Market nations in Dublin last December, Mr. Papandreou angered other leaders by demanding that the market pay the three present Mediterranean members $6 billion over five years in special agricultural aid, with about $2 billion going to Greece. Chancellor Helmut Kohl of West Germany and Prime Minister Thatcher of Britain immediately dismissed the sum as too large.

Since then, Jacques Delors, president of the Common Market’s executive commission, has offered to give the farmers in Greece, France and Italy $1.4 billion in grants over the next five years and $1.7 billion in loans.

Compromise Seems Possible

Mr. Papandreou was reported by other delegations Friday to have said he was willing to negotiate on Mr. Delors’s proposals, provided that Greece gets close to the $2 billion that it would have received under Mr. Papandreou’s demand. But Chancellor Kohl’s spokesman said the trade group’s offer was still too large for Bonn to accept.

Officials from several market countries noted that Mr. Papandreou faced difficult domestic pressures that might make it hard for him to compromise.

They mentioned the national elections that are due in Greece by October, saying the Prime Minister had an obvious interest in being seen as fighting hard for the best possible deal in Brussels.

But Mr. Delors has said he will withdraw his compromise offer if Mr. Papandreou rejects it and that his next proposal will be less generous to Greece.