I have deliberately tried to steer away from discussing the doldrums of Greece here, not because I can’t get my head around it, but because the resolution to this situation from an economic perspective is obvious to me already; Greece needs to leave the Euro and I think that in the fulness of time it is inevitable that it will.
After the recent Greek agreements, a metaphorical payday loan which Greece is using to pay off its current obligations, Greece’s ‘Debt-GDP ratio’ is approaching 165%. When you owe in a year almost twice as much as you earn before you have handled a single living expense, then the only option is to declare yourself bankrupt.
For Greece, the analogous response means leaving the Euro, however as the EU heavyweights have defied economic sense already by keeping Greece in the Eurozone through its bailout mechanisms, one can postulate that they will continue to throw good money after bad in order to keep the integrity of the currency ideologically.
What does ‘ideological integrity’ mean you say? If Greece is allowed to leave, membership of the Euro appears optional, ‘optional’ membership of a struggling currency equals political instability, causing subsequent havoc for the EU’s political integrity; and for some, its future of ‘ever closer union’. Even if it makes no sense for Greece to stay when you look at the balance sheet, the EU will sink money into Greece to keep its membership intact and the idea of the Euro alive.
However this doesn’t change the solid fact that smothering Greece in even more unplayable debt, which is already the root cause of its problems, only compounds the issue further. They can give Greece money to right is listing economy, but only if they allow the debt to be written off or otherwise include a seriously generous package of debt relief.
Unfortunately it is quite clear even from the recent deal, that writing off of Greece’s debt is absent from discussion. To even secure a relatively modest amount of debt relief, Greece has had to flog a wealth of its national assets to raise capital; such as ports, airports and even some of its islands. Consequently, all this deal has done is prolong the time it will take for Greece to fail, and deepen its grave when it finally does by pillaging what assets it does have. What is the European Union going to do when Greece has nothing left to sell except the Elgin Marbles? Oh wait, they already did that…
Thus we are in the odious position where the EU heavy-hitters are ideologically wedded to maintaining the Euro project, without being willing to make the necessary economic sacrifice from their own treasuries, e.g forgiving debt so that it is manageable. The reason they continue to resist debt relief and write-off is partly because it is electorally very unpopular and elections in both Germany and France are looming, in addition to the risk of ‘contagion’ where Spain and Italy would ask for parity, and cause even greater instability across the Euro group.
Nonetheless, much has been made in the last few days by some of the usual faceless EU ministers attempting to defend the Euro, that the problems Greece come from the fact that it wouldn’t have legitimately qualified to join the Euro in the first place; it’s not the Euro’s fault, its Greece’s. Indeed, Greece invited Goldman Sachs to cook their books so that they could meet the economic conditions to join back in 1999, then went on to host an Olympic games which they could never afford, in a climate of almost universal tax-avoidance; needless to say, it all downhill from there.
Much like the car from Grease, this Greece had its bodywork buffed up and bagged itself a repaint, but underneath the hood it was still an old banger that had one good race left in it. Yet while this fact could be seen as an embarrassing skeleton to push back into the burgeoning EU closet, instead I’d argue it is a rather fantastic ‘get out of jail free card’ that allows them to save face, and save Greece at the same time.
If the claim is that Greece lied to get into the Euro in the first place and should never have joined, why is so much effort going into keeping them in it now? The Eurozone should retrospectively eject Greece from the Euro, let it have its own devalued currency which in theory would stimulate trade and tourism; use the EU as a mechanism for support, all the while avoiding the risk of contagion,because their leaving was not optional, instead a sanction necessarily applied to a nation that broke the rules.
Ah, I remember now, therein lies our problem. The EU has an abysmal record for creating rules that people stick to, and so would rather solve this kaleidoscope of calamities by issuing an authoritarian diktat upon Greece that skirts the issue and avoids the problem. The issue with the Eurozone response to this crisis is that they insist on putting the cart before the horse. If the objective is to save the Euro at all costs, heaping more wood onto its funeral pyre in the form of heavier debt, deeper bailouts and authoritarian attitudes towards Greece is not the appropriate or efficacious way to go about it, imaginative thinking that cauterises this festering wound is.
President Hollande made it perfectly clear today that he would like to see a more ‘Federal Europe’ come out of this crisis, one that brought the single currency nations closer together in economic union while leaving the other members behind. This ‘ever closer union’ is perfectly possible, but if it is going to include Greece this will mean taking on its debts too. If that is the case, the ECB should simply gift this money to Greece now; after all they will recoup it once the closer union was achieved. If they don’t wish to take on these debts, then she may as well leave now as a nation who is on the wrong side of the EU apartheid.
It’s ‘make your mind up time’ for leaders in Europe, and whatever happens I predict that it is going to have a very positive impact on the ‘No’ Campaign in our own EU referendum, where even those who are Pro-Europe will find it hard to defend us joining a federal Euro, and if Greece leaves and is allowed to recover, it will provide a narrative for like outside of the even more loony and undemocratic asylum.