Other Eurozone countries are faltering, with far more worrying consequences

“We are finished as a nation,” says Marko Gjini, a 39-year-old unemployed construction worker in Athens. “The country has been sold off. We have no say in anything anymore. Greece is owned by the Germans.”

Like many Greeks these days, Gjini is bitter and despondent because of his country’s financial mess, and the austerity measures that have been imposed in an effort to contain it. His wife, Aleka, a public hospital nurse, has seen her income drop from 1,200 euros a month to 800 euros. Now, facing more taxes and cuts to public expenditures, the family expects to have a net monthly income of less than 500 euros. Marko and Aleka are investing whatever money they can toward English lessons for their twin eight-year-old boys in the hope that they might have a better future somewhere else. “Let the government fall,” says Gjini, “[German Chancellor Angela] Merkel is the boss now anyway.”

Greece’s financial troubles have been accelerating since 2008, and have now reached a crisis point. Unable to pay debts accumulated through years of wild spending and financial mismanagement, covered up by blatant cooking of the books, last May the country accepted a $150-billion bailout loan from the International Monetary Fund and other members of the eurozone—those European Union countries that use the common euro currency—in return for imposing harsh austerity measures. These weren’t popular among ordinary Greeks; strikes and street protests followed. Three bank officials died in May when rioters set fire to their bank branch in downtown Athens.

The Greek government, meanwhile, missed its financial targets. Rescue loans were delayed. And the recession got worse. Facing the very real possibility of defaulting on its enormous national debt, Greece last month negotiated another bailout package involving cash and a 50 per cent “haircut” off all its privately held debt, if Greece would agree to further cuts to public spending and increased taxes.

Greek Prime Minister George Papandreou then shocked the rest of the continent when he announced he would take the proposed package to the Greek people in a national referendum. But French President Nicolas Sarkozy and Merkel—leaders of the two largest economies in the eurozone—summoned Papandreou to a meeting of the G20 in Cannes, France, and told him all bailout money would be suspended until after a referendum vote was held. What’s more, they said, a referendum on the bailout deal would, in effect, be a vote on whether Greece wished to remain in the eurozone. Papandreou backed off and dropped the referendum.

For Vaso Gildizi, a Greek freelance writer, events in Cannes were “a national humiliation for the country.” The Greek prime minister was scolded like a schoolboy and sent home. The incident didn’t sit well with many Greeks who were already sour on the bailout deal and the euro itself.

“We’re bankrupt,” says 44-year-old Vasilia Paneli, owner of Bliss, a trendy café a short walk from Syntagma Square and the parliament in Athens. “We know it. The EU knows it. And yet we continue this Greek tragedy. A referendum would at least give us a voice, a chance to speak up for our future.” Paneli was unmoved by French and German threats that a referendum on the bailout deal would have meant a vote on whether to remain in the eurozone. She’d rather Greece leave it. “It’s self-serving,” she says. “I say let’s go back to the drachma.”

This option of leaving the eurozone and reverting back to Greece’s previous currency has some traction in Greece. “Under the euro we’ve become a nation of bailout slaves,” says Stavro Tsoykalas, an unemployed truck driver who claims people were never as poor during the drachma days as they are now. He too would like to drop the euro.

William Antholis, a senior fellow at the Brookings Institution think tank, likens flirting with a return to the drachma to “threatening suicide to avoid a lynching.” Greece is in for a painful few years whatever happens, he said in an interview with Maclean’s. The austerity measures are going to bite. But leaving the euro, he says, would be disastrous. The costs could include a run on Greek banks, as people sought to withdraw euros before they were changed to drachmas. Some banks would probably collapse. Greece would likely default on its debts, and would be unable to pay pensions and salaries. Some sectors of the economy built on export might benefit from a new, devalued currency, but at the expense of much heavier blows elsewhere.

“Greece would be basically shot back into developing country status,” says Henning Meyer, a senior visiting fellow at the London School of Economics. “The economy would almost certainly collapse. It would be a very severe economic shock to the country.” But Meyer is also critical of the bailout package. Forced spending cuts will shrink Greece’s GDP, he predicts, crippling its ability to pay down its debts. What’s needed, he says, is a “European growth strategy” of targeted cuts but also investment. This isn’t on the table. Greece will accept the bailout package, he says, “because they’ve basically got a gun to their head. There are no good options left.”

Indeed, this week the Greek socialist government and opposition conservatives agreed to form a coalition government until a new election is held next year, possibly in February. Papandreou will remain as prime minister until his interim replacement is chosen. In the meantime, the coalition government will approve the bailout package, triggering the release of the now frozen rescue funds.

This won’t solve all of Greece’s problems, though. The economy will take years to recover, if it does at all. This will make Greece difficult to govern in the years ahead, as future governments will have to convince voters that austerity measures are still necessary, even as their standard of living stagnates or declines.

“If one of us were indebted to that degree and told you have to give up all the comforts that you’ve been accustomed to, and on top of that pay more out of your pocket, and maybe in 15 years you’ll see some incremental growth, there isn’t much incentive for people to work toward that goal,” says Phil Triadafilopoulos, an assistant professor of political science at the University of Toronto. “There isn’t much hope in that message. And that’s basically the message of austerity at its best.”

It’s not certain Greeks will buy in to such a deal, and solve some of the problems that have bedevilled the Greek economy and made reform so difficult: widespread tax evasion and a pervasive black market. Kostas Agas, a banker in Piraeus, a port city on the outskirts of Athens, says that even though Greeks understand the severity of the problems facing their country, many “continue to perpetuate the black money economy and the no-receipt mentality, but now it’s done in defiance of the austerity measures.”

Beyond Greece’s economic future are dilemmas about its political one—and indeed about the political future of Europe as a whole. “This is a much bigger than a question of currency. It’s a question of identity and who we are moving forward,” says Triadafilopoulos.

A generation or two ago, Greeks talked about “going to Europe,” as if the place were somewhere else. This has changed, as Greeks, especially young Greeks, embrace being part of a larger European community. But cynicism is growing among some, such as Gjini, the construction worker who believes his country is owned by Germans and run by Angela Merkel.

“The nature of the European Union is that you give up a piece of your sovereignty in return for prosperity and democracy,” says Jeffrey Kopstein, a political science professor at the University of Toronto. “That’s the bargain. If the prosperi