By Louis A. Delvoie,

The Concise Oxford Dictionary defines the verb to exaggerate as to “enlarge beyond limits of truth; intensify, aggravate”. It defines fear as a “painful emotion caused by impending danger or evil, state of alarm”. Both of these terms came to mind on reading recent headlines concerning the Greek financial crisis. 

The lead story in the July 4 edition of The Economist was captioned: “Europe’s future in Greece’s hands.” On July 7, the Globe and Mail entitled its main editorial: “Greece: Europe, this is your last chance.” In both instances the writers predicted dismal futures not only for the Euro Zone, but also for the European Union as a whole if a solution were not found to the problem of Greece’s ever growing national debt and its failure to meet its obligations to its creditors.

But are these fears exaggerated? Can the European Union and the Euro Zone be brought down by the actions of Greece? To suggest that they can would seem to ignore a good deal of European history in the years since the end of the Second World War. It would also seem to grossly inflate the importance of Greece as a partner in Europe.

What is now the European Union is the end product of decades of institution building. It all began with the writings of a visionary French thinker, Jean Monnet, in the late 1940s. He advocated the creation of a federation of European states so as to not only strengthen their economies, but also to banish the prospect of any renewal of hostilities among them. Monnet’s ideas were progressively given practical form through the actions of gifted political leaders such as Robert Schuman of France and Paul Henri Spaak of Belgium. And Monnet’s ideas were given a major impetus through the historic Franco-German Treaty concluded between President Charles de Gaulle and Chancellor Konrad Adenauer.

European institutions evolved and morphed over many years. First there was the European Coal and Steel Community of the early 1950’s. Then there was the Treaty of Rome of 1957 which created the European Economic Community (EEC) consisting of Germany, France, Italy and the three Benelux countries. After arduous negotiations the membership of the EEC was expanded in 1972 to include Great Britain, Denmark and Ireland. They were joined in the 1980’s by Greece, Spain and Portugal bringing the total membership of the Community to twelve. In the 1990’s the Community was transformed into the European Union (EU) and the number of its member states more than doubled following the collapse of the Soviet Empire in Eastern Europe. Finally in 2002 the EU launched its single currency, the Euro, which was adopted by 18 countries, thus creating a new entity, the Euro Zone.

The process of European integration was certainly not a uniformly smooth or harmonious one. The drama of France’s veto of British membership in the 1960’s was followed by decades of disagreement over the Community’s budget and its Common Agricultural Policy. Crisis meetings of political leaders were frequent in the midst of sour debates over social policy and political integration. Some political leaders such as Prime Minister Margaret Thatcher became famous for their efforts to stymie further integration. And in one country after another, “Euro-skeptics” became part of the political landscape and fostered political parties advocating their country’s withdrawal from the EU.

Nevertheless the European Union rests on solid foundations with deep roots. For the vast majority of its member states it is a key to their economic prosperity, fostering as it does enormous amounts of international trade and tourism. Farmers and others benefit greatly from its Common Agricultural Policy. For the citizens of countries party to the Schengen Agreement, it provides for free and easy movement across what were once fortified borders. And the list of economic and social benefits could go on, but what is perhaps most important is that the European Union is the ultimate guarantor of peace in Europe, a continent once beset by centuries of vicious and bloody wars.

Against this background, it is interesting to examine the current Greek crisis. What exactly precipitated it? The answer is fairly evident. Successive Greek governments have been guilty of profligacy or reckless extravagance. They have provided their citizens with generous social security and pension schemes which the country could not afford. They have done this while failing to come to grips with the problem of massive tax evasion. And they have done little to curb the corruption which afflicts the society as a whole. Rather than tackle these problems, Greek governments have chosen to borrow ever larger amounts of money, to the point that their national debt is now totally unmanageable without extensive external help. While the primary responsibility and blame for this situation rests on the shoulders of the Greeks and their governments, some must also be accepted by the international institutions which lent Greece large amount of money without foreseeing the consequences. The proverbial chickens have at long last come home to roost.

Over the last month or so the Greeks and their creditors have been engaged in an elaborate tug of war. The latter have been insisting that the Greek government undertake a painful programme of financial and economic reform in exchange for any further loans. This will not be yet another barely conditional bail-out. The Greek government, for its part, has claimed the demands of the creditors are politically impossible and economically unwise, since a decade or more of austerity would have the effect of further crippling the Greek economy. And as the debate has raged on it has taken on some historico-political overtones. The Greeks tend to see Chancellor Angela Merkel of Germany as the most demanding of their creditors. Given Greece’s experience of German occupation during the Second World War, they portray any Greek acceptance of reforms as yet another surrender to a diktat from Berlin. This has made the situation all the more difficult for the Greek government.

But what of the fears that have been expressed about the possibility of a so-called “Grexit” from the Euro Zone and the European Union. They have, to say the least, been greatly exaggerated when they are examined in the light of cold facts. The European Union is made up of 28 countries with a total population of some 500 million people. The Euro Zone is made up of 18 countries with a combined population of 332 million people and a combined Gross Domestic Product (GDP) of $12.2 trillion. On the other hand, Greece is a relatively small and poor country with a population of 11 million and an annual GDP of $249 billion (less than one tenth of the GDP of France alone). Viewed in this light it seems ludicrous to suggest that the actions or inaction of the Greek government could threaten the continued existence of the Euro Zone and the European Union, even if they did provide some encouragement to populist politicians in Spain and Italy.

In the midst of all of the hand-wringing over the Greek situation, another major international economic problem has been singularly under-reported. That concerns the turmoil which has been experienced by all of China’s stock markets in recent weeks. Now that really matters because China has a population of 1.3 billion, is the world’s second largest economy and is a major market for Western goods and services.

Louis A. Delvoie is a Fellow in the Centre for International and Defence Policy at Queen’s University.