What Does the Greek Debt Crisis Mean for the UK?

By James O Malley on at

If you spent any time on Twitter yesterday, then you might be surprised to have discovered that it turns out most of the people you follow actually have secret second careers as Eurozone Macro-Economists, at least as far as the Greek debt crisis goes.

As Greece voted in its referendum on whether to accept proposals in the on-going Eurozone negotiations, seemingly everyone had an opinion on what was the right thing to do. And in a brilliant coincidence too, events in Greece seemed to confirm the pre-existing opinions held by both those on the side of “Oxi”, and those on the side of “Nai”.

Needless to say, the situation over there is pretty confusing for anyone who doesn’t have a PhD from the University of Bravado. And it can leave us asking… what does it mean for Britain?

The UK Economy and the Greek Debt Crisis

Let’s start by looking at the economic implications. Firstly, we shall state obvious. If Greece and the rest of the Eurozone fall into crisis and recession again, that’s bad for Britain. The rest of the EU is unsurprisingly the UK’s largest trade partner, so economic uncertainty in Europe is a not good news for us, as it will dissuade cross-border trade, costing us jobs and income.

Given that we’re still feeling the impact of the 2008 financial crisis, and growth in most countries has been really slow since, another meltdown in Europe would be bad news. Though the good news is that as the Greek crisis has been rumbling along for so long, most big financial institutions have probably already priced in the odds of a Grexit (that's short for 'Greek exit') into their plans, which means that, should Greece pull the plug, the news will be very exciting for a few days. But it (hopefully) won’t see the sort of crazy stock market doomsday like we saw in 2008. Hopefully. (Hell, Greece is so small perhaps we should be worrying about what’s going on in China instead?)

As for the specific events transpiring in Greece, what will happen and what it will mean for Britain basically depends on who you ask. There’s an old joke that if you ask three economists a question, you’ll get five answers; that seems very much to be the case here. If Greece exits the Euro, will it cause disaster or let the country fix itself after Frankfurt’s prior domination? If Greece is bailed out, does that mean austerity has been defeated? Nobody really knows. As I say, it is within Britain’s interests to have a successful Greece and a successful Eurozone, but how to achieve that is down to your political preferences.

What makes it even more bewildering is that there are so many supposedly expert commentators popping up that it has become like the waves of psychic animals during the World Cup: there’s so many of them making predictions that at the end, you’ll be able to look back on one person who will have coincidentally called it all correctly, and they will be (perhaps undeservingly) looked on as a prophet.

greek debt crisis

Britain’s Place in the World

Since the EU was founded in 1958, it has progressively grown larger and stronger. What started as a simple agreement over coal and steel trade among six European countries has, over the last 57 years grown to fully functioning single market of 28 countries, complete with its own single currency and parliament. Sovereignty has been pooled, enabling the member countries to become deeply integrated together, and able to act as one on the international stage.

The Euro is as much a political project as it is an economic one: it is a statement of intent that a continent that has spent millennia at war can put aside its differences to the extent that they can trade together freely.

The reason the Greek crisis is such a big deal is because it essentially slaps down this growing ambition of the EU. It seems unlikely that (assuming the Euro even survives) more countries will be joining any time soon. Perhaps even expansion of the EU into the Balkans will be off the table for the time being, as politicians choose to focus energies on sorting out existing problems before introducing potential new ones.

In addition to being a symbol though, the EU is also a powerful actor in wider international relations. It has enabled small- and medium-sized European nations to bind together and stand toe-to-toe with the US, as well as China and Russia on the international stage. And a faltering EU could change international power dynamics, which would affect Britain whether it is a member of the EU or not.

For example, a disunited Europe – tearing itself apart over the Euro – is a ripe target for Russian “divide and rule”. It has already done this in the past: in the Noughties Russia was able to use its natural resources to try to get its own way by switching off the gas to one country (Poland) while continuing to sell it to another (Germany), which gave the different European countries involved radically different foreign policy objectives. Dealing with Russia is a bit like parenting: it is ineffective for one parent to tell off a child if the other will let it get away with murder.

It is perhaps easy to imagine Greece, having faced disaster by either having been forced out of the Euro, or from EU-imposed austerity, turning to Russian money for another bailout, which would have the effect of neutering Greek criticism of Russia, and giving Russia more influence in the country and Europe more generally. As I have argued elsewhere, do we really want to hand more power to Russia?

This is important to Britain is because broadly speaking, a strong Europe which is free and democratic is within our political interests (no need to worry about war with our neighbours like we used to) and our economic interests (we like selling things to Europeans). So a weaker Europe, at the mercy of outside powers (especially those as authoritarian as Russia) will be bad for our national interest.

British Domestic Politics

So finally, what about the impact on domestic British politics? It can’t have escaped your notice that we’ve got our own on-going battle about our membership of the European Union. So what does it mean for us?

Whatever happens in Greece and the Eurozone, we’re still expecting the Government to hold a referendum on our continued membership of the bloc some time in 2017. And what’s really interesting is to see the effect the Greek crisis is having on the build up.

Previously, despite the endless sabre-rattling from the likes of Nigel Farage, most people assumed that Britain will vote to stay in the EU by a comfortable margin; the polls reflect that too. Pretty much the entire political class, aside from the right of the Conservative party are pro-Europe; even the Daily Telegraph is publishing pro-EU coverage and it is widely expected that David Cameron will be campaigning for us to stay in.

What’s surprising following the events in Greece is that some commentators on the left, like the Guardian's Owen Jones, have come out strongly on the side of Greece and against the EU, finding common-cause with libertarian right-wingers like Conservative MEP Daniel Hannan. This is a bit weird, because apart from a previous few cranks on the fringes, the left has been almost entirely pro-EU.

If this trend persists to our poll, it is going to change how the campaign is aligned and make it more like the 1975 referendum on membership, in which both “in” and “out” camps had both left- and right-wingers fighting on the same side. At the time this saw some weird political team-ups as left-wing Tony Benn and right-wing Enoch Powell (of “rivers of blood” fame) both supported leaving the EU. Frankly, Batman and the Joker teaming up together to fight for a particular cause would have been less strange. Could a newly re-awakened left-wing Euroscepticism do similar this time around, and make the eventual referendum much closer?

The other major impact in the UK could be in the debate over austerity. Though Greece and Britain are very different economies, Greece standing up to Europe has been widely viewed as standing up to austerity; if Greece is successful and gets its debts written off, or receives a bailout, then that could inspire anti-austerity campaigners in other countries. The next biggest ‘threat’ to the austerity consensus is thought to be Spain, where a political party called Podemos are hugely popular, and offer a similar prescription to Greece’s ruling Syriza party. But we could see similar here in the UK too. If other countries are successfully resisting austerity, depending on how that goes it could either enhance our government’s justification for the cuts, or completely obliterate its claims that we need to cut public services as a priority over helping people. Greece could play a huge role in shaping our own political debate for the next few years.

Ultimately though, the Greek crisis could make the British think that the EU is, frankly, a bit rubbish. While there are still plenty of positives to membership of the European Union, the Eurozone crisis is an almost incomprehensible issue to outside observers, so anyone looking on could perhaps be forgiven for wondering what the massive clusterfuck is all about, and why we would want to be anywhere near it. If this attitude persists, it isn’t good for our referendum. And (in my pro-European view) won’t be good for the country at large.