What’s the worst case scenario for Greece?

As Greeks face the prospect of a new round of austerity measures, growing discontent has some wondering if the Arab Spring could spread to southern Europe. Already, thousands of protesters have clashed with police in Athens’ Syntagma Square, calling to mind iconic images of Hosni Mubarak’s unceremonious ouster.

The immediate source of Greek resentment is an emergency reform package that includes tax hikes, public sector wage cuts, and privatization of some $70 billion in state assets. The Greek government narrowly survived a confidence vote last night, but it still must pass the measures before the EU will fork over the next installment of its $155 billion bailout pledge.

But the roots of the rioting may run deeper than outrage over immediate macroeconomic policy decisions. According to John Salevurakis, associate professor of Economics at the American University in Cairo, Greece faces chronic economic problems that aren’t that different from those that sparked the revolution in Egypt. General unemployment sits at 16.2 percent in Greece, according to Salevurakis, and youth unemployment is at 42 percent. "Both of these numbers are higher than those of Egypt," said Salevurakis.

"What’s more, by necessity I think Egypt has a much more efficient informal sector to absorb the unemployed and generate a certain amount of social stability."

Clearly, without a brutal dictator or anywhere near the level of repression that exists in Arab societies a comparison with the Arab Spring is imperfect at best. Still, as Bruce Crumley blogged on Time.com, there are "strong shared feeling among the mobilized publics on both continents that the system fails them."

Moreover, according to Crumley, "with many European youths having little hope for getting a good, well-paid, career-promising job within what’s currently a blocked economic and business set-up, a large portion of them want their country’s social models to change."

When asked about the source of these economic woes, Salevurakis ultimately fingered the same boogeyman as the protesters in Syntagma Square:

At the moment, Greece is firmly under the thumb of the ECB and the IMF.  Granted, the Greeks desired EU membership and benefitted substantially from it but now they are stuck with a currency that is dramatically overvalued relative to what it should be given their national economic conditions.  Given their inability to devalue, they are slaves to IMF and ECB aid packages which of course come with austerity based strings attached.  This means that the only way to reduce debt, while any other country could print their way out, is to endure higher levels of unemployment and greater economic stagnation.

The cruel irony of all of this is that austerity will do nothing to improve the situation for Greece.  Her budget deficits will grow as unemployment rises, consumption continues to decline, and tax revenues fall.  Frankly, the time for embracing austerity as a means to address Greece’s budget woes was over several years ago.

But it’s not just about the economy; Salevurakis also pointed to identity politics, citing the fiercely independent spirit of most Greeks. "For this reason alone, their EU affiliation might have been a bit incongruous," he said. 

The Greek government toeing the ECB/IMF party line is so contrary to the fundamental Greek character and spirit that the domestic powers appear weak to the citizenry at every obedient turn. Greek leadership voicing these sentiments starts to appear completely traitorous and worthy of overthrow on pure nationalist grounds.

What’s the worst that could happen? "Well, an Egyptian-style military coup", Salevurakis said with a mild tone of sarcasm, but he noted that a breakaway from the Eurozone is a "long shot for Greece within the current political structure".  

According to Salevurakis, there are two possibilities if the Euro were abandoned by some new revolution-inspired Greek government.  The Greeks could "embrace a complete default on Euro-denominated debt and put all of Europe (indeed the world) at risk for the resulting contagion or Greece could try to print away the debt with rapidly depreciating New Drachmes".  In either case, Salevurakis notes, "the capital flight would be almost audible as the Greek government tried to figure out how many New Drachmes were equal to every Euro in every domestic account".  

Salevurakis noted that the difference between the two potential situations would likely be a depression in the first case and near hyperinflation in the second.