External Action

Greece, Schengen and the Eurozone

Mujtaba Rahman / Mar 2016

Donlad Tusk, president of the European Council, and Alexis Tsipras, prime minister of Greece. Photo: European Union

It is hard to believe how quickly the certainties offered by EU membership can disappear. For half a decade, Greece has edged from month to month, unsure of its chances of remaining in the Eurozone. It has now been effectively jettisoned from the Schengen zone and lies at risk of becoming a migrant trap.

Two familiar but separate crises – one related to debt, the other to migrants – are clearly on a collision course in Greece. Creditors will continue to argue that the burden posed by migrants on the Greek state budget is only a tiny proportion of the sums involved in the bailout. Given the contribution made by other EU states to build new “hotspots,” they do have a point. But the onerous reforms required by the bailout are political challenges which will be even harder to overcome as the electorate frets over the build-up of migrants.

Greece is being penalized by its location. With islands only miles from the Turkish coast, it is the first European country on the “Balkan route” migrants have been taking to Germany. Greece’s isolation from the rest of the nominally borderless Schengen zone means they must leave it before entering again further North. Smaller Schengen states like Hungary, Slovenia and Austria have effectively taken matters into their own hands and are limiting the number of migrants they let through. This has forced countries further down the route to take action and Greece is quickly becoming overwhelmed by Macedonia’s decision to tighten its border last week.

Over 1 million migrants took the Balkan route last year. Even if some are deterred by rumours of bolstered borders, flows will not diminish substantially. Still panged by debt and uncertainty, Greece’s 11 million-strong economy (next to Turkey’s 75) is in no position to accommodate so many migrants and the population knows this. Still, their bailout prescribes reforms including contentious measures to reduce the burden pensions exercise on the budget.

The IMF has criticised the government’s proposals by saying they will not lead to enough up-front savings. It is difficult to imagine how the government will go any further with a shaky majority and protests already turning nasty. As always, the Commission is more sensitive to Greece’s political situation, questioning what the government can achieve with a two seat majority, and more willing to work with a reform that will deliver results over time. Ultimately, however, the negotiations are likely to go more the IMF’s way: its calculations will not change as long as the Eurogroup refuses to consider additional debt relief.

In more normal circumstances, the government would try to move quickly to pass its first bailout review before Easter. This would imply more onerous pension reforms, as well as other cuts to make primary surplus targets more achievable. But news that the Macedonian border is closed changes this. How can Mr Tsipras calm swelling protests by announcing even more cuts, just as Europe leaves Greece to deal with the migrant crisis by itself? Unable to hide from this double crisis, Mr Tsipras may resort to his favourite method of catharsis by calling an early election. A fresh democratic endorsement could provide cover to progress with his reform agenda. But given the appeal of New Democracy under Mr Mitsotakis, it could also make for an even less operable Hellenic parliament.


Mujtaba Rahman

Mujtaba Rahman

March 2016

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